What costs do banks incur on processing credit card refunds in foreign currency?

Question

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):

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:

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?

Answer 1

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.