How it works: You pay for a souvenir using your U.S. credit card and the merchant hands you back a receipt in U.S. dollars. "Seems innocent enough, but exchange rates (almost always) favor the merchants," says Robert Reid, U.S. travel editor for Lonely Planet, a travel information company.
Called dynamic currency conversion, or DCC, this allows a transaction to be converted to local currency when you pay in foreign currency.
The catch: The exchange rate isn't calculated by the credit card issuer, but rather by technology partners through the merchant's bank. DCC is done at point of sale, so the credit cards and the banks that issue the credit cards don't play a part. It's important to note that DCC fees can only be added to Visa and MasterCard credit and debit card purchases. American Express cards use a closed system.
"This is a scam that regularly means overseas travelers lose 4 percent to 7 percent on credit card purchases," says Reid.
Where it happens: Western Europe, particularly Spain.
What you can do: Always pay with local currency. If paying by credit card, use American Express.