Are you being overcharged for overseas purchases?
By Kristin Arnold • Bankrate.com

Your credit card company is making a killing off the money you spend on your foreign vacation, and you might not even know it.

This extra profit is called a "foreign currency-conversion fee," and you could be paying up to 3-percent extra when you make an overseas purchase with a credit card.

One percent of that charge comes from the Visa or MasterCard networks, which charge a 1-percent fee for converting your foreign-currency purchase into American dollars.

On April 1, Visa replaced its 1 percent currency-conversion charge with a 1 percent "transaction fee." MasterCard plans to start charging the same transaction fee starting Oct. 1, replacing its current 1-percent currency-conversion charge.

No matter what you call it, it's a good deal. Changing your money in almost any other manner will probably cost you a lot more.

But many credit card issuers and banks are cashing in by adding up to a 2-percent charge on top of that 1 percent without doing a thing to earn it.

"Banks have been making a profit off their customers for a long time, while providing no service," says Linda Sherry, the editorial director for Consumer Action in Washington. "Visa and MasterCard are doing all the work; it's simply pure profit for banks."

Ed Perkins, syndicated travel columnist and author of "Business Travel When It's Your Money," agrees.

"People who travel to foreign countries are outraged by this charge. It's pure gouging that credit card companies know they can get away with," he says.

Bankrate contacted four credit card issuers -- Bank of America, MBNA, Citibank and Chase -- to get an explanation for the additional charge. All refused to explain the reason for the charges.

Few banks actually list currency-conversion fees on credit card bills. Most banks add the conversion fees into the transaction prices listed on customer bills -- never actually showing customers the rates they charge.

The charge varies from card to card, but major credit card issuers such as Citibank, Bank of America, JP Morgan Chase and MBNA charge 2 percent on overseas purchases. Add that to the 1 percent Visa and MasterCard charge for the actual conversion and you will pay an additional $3 for every $100 you spend.

So that $300 pair of shoes you bought in Milan, Italy, will show up on your statement as $309 because Visa or MasterCard got its 1 percent cut charging you $3, while your credit card added its 2 percent by tacking on $6.

That failure to disclose is starting to change due to recent lawsuits brought by consumers who say that their credit card company failed to adequately disclose currency-conversion fees on their credit card statements. Some credit card companies have now issued statements identifying the currency-conversion fee and how much their cardholders will be charged.

"I think the breakout of the fee could have an impact on the market," Sherry says. "Consumer outcry could cause some banks to lower their fee or do away with it."

But until that happens, shop around for the best credit card and ask questions until you're sure your selection doesn't charge a currency-conversion fee on top of the Visa or MasterCard charge.

Consider, for example, Capital One. Not only does the credit card firm not change an additional 2-percent fee, it even absorbs the 1 percent charge from Visa or Mastercard, so the customer pays nothing.