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When a credit card transaction is in currency different to the one of the card, it is pretty normal for banks to charge a 1-3% fee associated with the currency conversion. Some banks do this by using their own conversion rates. Other banks charge a separate fee from the purchase while converting the purchase using rates from the payment system e.g. Visa/Mastercard. The latter is what all my cards' issuing banks do.

This question is about how those fees are handled on refunds. I have experience with credit cards from 4-5 banks in New Zealand, and all of them, except for one, handle it like this (excerpt from a real statement):

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As you can see, the bank charged its fees in two separate lines ("Currency Conv Assessment" and "Foreign Currency Txn Fee"). What is important is that those fees were credited on the refund processed on 30 July 2012.

Now, one bank does this thing:

enter image description here

Essentially, it charges (debits) the fee on refund too — like it did on the original purchase. Whilst this is not contrary to their Credit Card Terms of Use (it is neither directly mentioned in there either, though), I am wondering:

  1. Which of the two practices is considered "normal", if any;
  2. Are there any costs that banks incur on processing foreign currency refunds (that are caused directly by those refunds being in foreign currency) that would justify debiting the fee on refunds as in the second example?
  • Pure speculation: Could it depend on why the refund was made? For Merchant, bank or card-processor error, or if the goods were "unfit" etc., I could believe/hope any charges would be reversed. If you "just changed your mind", I could see them charging an additional transaction fee to send the money back in a different currency than your own. – TripeHound Jun 11 '18 at 7:03
  • @TripeHound banks have no idea and have no interest to know why payments are refunded. The described behaviour has been consistent within each bank for many years no matter what the refunds were about. – Greendrake Jun 11 '18 at 8:34
  • Fair enough, it was just a idea... in the UK, credit-card companies bear partial/joint responsibility with the merchant for fulfilling the transaction, so I could see that it was possible that refunds for different reasons could be treated differently (but having never needed to get a refund, it was, as I say, speculation). – TripeHound Jun 11 '18 at 8:39
  • Why would the currency exchange costs only exist in one direction? All of the costs that exist to exchange from NZD to USD would exist to exchange from USD to NZD... I'm actually surprised your other 4 cards don't charge the fee on refunds. – quid Jun 12 '18 at 23:50
  • @quid I am not too sure what those "currency exchange costs" are in either direction, hence the question. On purchase, banks sell local currency and buy USD at the Visa/Mastercard rate, on refund they receive USD and sell it back for local currency — again at the payment system's rate (which of course will fluctuate). The process is completely automated so the 1-3% they charge is merely their margin for profit, not actual cost. Apparently most banks make goodwill but performing refunds in such a manner that customer gets back what they paid to the fullest degree possible. Some do not. – Greendrake Jun 13 '18 at 0:09
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Usually the fees credit cards charge are based on their terms and conditions in their agreement with you. If it is a Mastercard or Visa they usually use the official Mastercard or Visa rate at the time the transaction was posted to your credit card plus a percentage (e.g. 0% to 3% - whatever is stated in your agreement).

Normally if a refund is made the amount is negative and so is the foreign transaction percentage though there may be some variability if the refund is processed on a different day due to fluctuations in the exchange rate.

Here you look like you are being charged a fee simply because a foreign currency is involved regardless of whether it is a purchase or a refund. I would review the agreement with the bank to see if it is being applied correctly.

If it is in line with the agreement and you are a consumer you may be able to challenge the fee on the basis that it was buried in the small print and not pointed out to you - particularly if it was not a document you signed.

The banks already make about 2.5% or more off every card transaction... surely they can be a bit more reasonable if a refund is involved.

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