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When you’re traveling overseas and you use your credit card to pay for dinner, you’re probably being charged a foreign transaction fee. What’s this fee for? Credit card issuers charge this fee for any transaction made in a foreign currency or on purchases that involve a foreign bank. It used to be called a currency conversion fee.  These fees are usually between 2 to 3 percent of your purchase.

So if you’re on a month-long bike ride across the south of France, you could end up paying a lot in fees. And to make this even more complex, when this fee is applied involves some fuzzy logic (aren’t you surprised?) about what constitutes “foreign.” In some cases, you can be charged a foreign transaction fee when you’re sitting in your home and ordering something online from a foreign retailer. So you need to be on your toes and watch for fees on your statement. The fees vary by card, so you have to check every credit card you own to know what you’re being charged. You’ll find this information in the Schumer Box in the “Fees” section.

Until recently, Capital One was the only major issuer who stood firm against foreign transaction fees. There are also cards from some credit unions, such as the Pentagon Federal’s PenFed Promise Visa Card, that don’t charge these fees. The majority of issuers still charge them, but some changes occurred at the end of 2010. Chase decided to drop these fees on its British Airways Visa Signature® Card. When Citi recently revamped its rewards cards, it eliminated these fees on its ThankYou Premier Card and ThankYou (SM) Prestige Card. And American Express announced that they plan to get rid of the fees for its Platinum Cards® and Centurion® Cards in early 2011.

Will other issuers follow suit and drop these fees? It’s hard to say. The need to remain competitive is a powerful force among issuers, but I don’t expect major issuers to follow Capital One’s lead and eliminate the fees across all of their products. It’s entirely possible, though, that a few more issuers will drop – or at least reduce – these fees from selected cards in 2011.

Image: Will Spaetzel, via Flickr.com

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