The Future of Credit Cards (And Their Fees)

Chances are you use your credit card heavily—to buy tickets, accommodations, rent cars, and other trip expenses. For the most part, credit cards probably serve you reasonably well, as long as you don’t run up huge interest payments. But a few of you have reported problems. Here’s my take on what might happen with credit cards in 2010.

Use fees. You’re likely to see some suppliers push to add a surcharge when you buy with a credit card. In most of the world, contracts between merchants and banks specify that the merchant charge the same price for credit card purchases as for cash. But some travel sellers would like to recoup the fees they have to pay on credit card sales. In the past, a few have evaded the same-price contractual provision by offering small “cash discounts.” More recently, some airlines—most notably Allegiant—have evaded the provision by adding a “convenience fee” to all ticket purchases other than those at the line’s ticket counter. Because ticket counter purchase is a major inconvenience for just about everyone, Allegiant’s “convenience fee” is, in reality, a way to surcharge online credit-card purchases. I suspect that other suppliers, hungry for additional profit opportunities, will consider adopting Allegiant’s ploy.

Merchants in Australia have gone a step further: They lobbied the government into enacting legislation that prohibits “same price” contracts altogether, and Australian travel sellers routinely add credit card surcharges that are often much higher than the bank’s credit card fees. I see no move for similar legislation in the United States yet, but it could happen.

Rental car “insurance.” The ongoing struggle between rental car and credit card companies about credit card coverage for collision damage will continue. The rental companies keep trying to add charges and conditions that the cards don’t cover, and the card issuers try to keep up with the latest changes. If you’re wondering why the card companies don’t offer what seems like a sensible alternative—optional guaranteed full collision protection for a fraction of what the rental companies charge—the answer is that by selling collision coverage as a separate transaction, the credit card companies would fall under state rules governing insurance agencies. On a related note, as I’ve written, primary collision coverage is far more attractive than the secondary coverage most cards offer, but so far American Express is the only card issuer that offers a reasonably priced secondary-to-primary conversion option. Let’s hope that at least some MasterCard or Visa issuers take up the idea.

Overseas problems. For years, I’ve written that plastic is the best foreign exchange system—credit cards for big purchases, debit ATM cards for cash. Despite the fees that many cards impose, you lose less with plastic than by exchanging currency or travelers checks. However, two problems have surfaced in recent years to complicate that simple rule:

• Dollar exchange. As far as I can tell, more and more overseas merchants try to convert your local bill to dollars and originate your charge in dollars. The problem here is that even if the charge is in dollars, if your bank surcharges foreign charges in local currency it also surcharges dollar charges that originate outside the United States. Some merchants give you a choice, some automatically write up the bill in dollars unless you challenge it, and, in either case, the merchant sets the exchange rate. Clearly, you run the risk of paying two fees: your bank’s automatic charge on foreign transactions plus whatever markup the merchant adds when calculating the dollar charge. Your only defense is to refuse dollar charges—if the merchant has already prepared the slip, ask that it be reissued in local currency.
• Incompatible cards. I’ve noted that automated ticket vending and toll machines in parts of Europe now require chip-enabled cards and don’t work with U.S. magnetic-strip cards at all. Last year the folks at MasterCard and Visa seemed to be ignoring this problem entirely, but I’ve heard recent rumblings that at least one or two U.S. banks are considering issuing compatible cards. Let’s hope.

What changes would you like to see with credit cards in 2010 that would make your travels easier? Do you have any tricks for getting around sneaky credit card fees? Share your thoughts and advice with fellow readers by submitting a comment below!