Regulation of credit card currency exchange rates

C

caseyman

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Credit card companies like VISA and MASTERCARD make their profits by charging currency exchange rates that are a variant of the median rate for the time (or date) of the exchange.
Does anyone know if the rates they can charge are regulated?
If so, who does the regulation and where can I read about the rules?
I have tried searching for this information without success. I find lots of detail about the actual rates being used but nothing about their regulation.
C.
 
They make very little from FX. That's your bank, except in cases where you got to have the charge converted to your card currency.
The card schemes make must of their money from interchange fees, which is regulated in EU since 2015.
 
What is the "cross-border handling charge" that appears on credit card transactions? Is that their commission, or is it in addition to a commission built into the rate? How is it calculated.
 
dub_nerd said:
What is the "cross-border handling charge" that appears on credit card transactions? Is that their commission, or is it in addition to a commission built into the rate? How is it calculated.
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That's the fee added by your bank!
The commission built into FX rates is tiny for most currencies. You'd really only notice it at the weekend when it's a bit more to cover risk of rates moving.
 
RedOnion said:
That's the fee added by your bank!
The commission built into FX rates is tiny for most currencies. You'd really only notice it at the weekend when it's a bit more to cover risk of rates moving.
Click to expand...
Are you sure? The rate for Sterling always seems to me to be about 3% on top of the spot price (BOI Mastercard), with the handling fee on top again. I wouldn't call that tiny.
 
OK, interesting stuff, but is the exchange rate charged regulated? I do agree that the rate for sterling does appear to be 2-3% off the spot rate. Not tiny.
But can they decide to charge 5%? Or 25%?
Is it competition that stops them raising the rate or regulation?
Does the Central bank have a say?
 
These charges are imposed by your bank. The MasterCard wholesale rates for common currency pairs have a 'round trip' spread of approx 0.5%.

They can justify larger spreads for example on Thai Bhats.

The fees, including FX spreads, added by your bank are regulated by central bank.
 
Indeed, but I want to know what the regulated max spread is precisely.
I can then compare this with the value used by the banks.
I can find the regulations relating to the fees but not the conversion spread.
 
Hi, it's covered by Section 149. That means each bank has to apply for approval of charges, so there might be different charges applying to each bank at any time, although it's fairly standard for FX margins.

You should find the rate applied by your bank in their brochure of fees and charges.

[broken link removed]

By the way, there was a class action lawsuit suit in the US on this very topic of hidden FX margins about 10 years ago.
 
It appears there is NO regulation. See response from Central Bank below.


Dear Mr. *******,

Thank you for contacting the Central Bank of Ireland.

The Central Bank of Ireland does not regulate and has no remit over exchange rates as they are set by the European Central Bank.
Exchange rates on the Central Bank of Ireland website are set by international money markets as a reference rate and it is the commercial decision of individual banks to set their own exchange rates.
These rates are variable and subject to change at any time.

I hope this information is useful to you.

Your sincerely,

*************
Cental Bank Of Ireland (sic!)
Ph: 1890 777 777
 
Just remember that both Visa & MasterCard fix rates a day in advance, so there'll be a difference in and FX movement, sometimes in your favour. A guide of tge spread can be seen by converting EUR to foreign currency, taking the result and convert back to EUR on the Visa website.
 
caseyman said:
It appears there is NO regulation. See response from Central Bank below.


Dear Mr. *******,

Thank you for contacting the Central Bank of Ireland.

The Central Bank of Ireland does not regulate and has no remit over exchange rates as they are set by the European Central Bank.
Exchange rates on the Central Bank of Ireland website are set by international money markets as a reference rate and it is the commercial decision of individual banks to set their own exchange rates.
These rates are variable and subject to change at any time.

I hope this information is useful to you.

Your sincerely,

*************
Cental Bank Of Ireland (sic!)
Ph: 1890 777 777
Click to expand...

Hi, can you ask them if the margin / spread applied over the wholesale rates published by the card schemes is subject to Section 149A of the Consumer Credit Act 1995.
 
RedOnion said:
Hi, can you ask them if the margin / spread applied over the wholesale rates published by the card schemes is subject to Section 149A of the Consumer Credit Act 1995.
Click to expand...

Sorry, but just to be clear before I ask them, it appears to me that Section 149 has 12 subsections (1-12) and some section has subsections a, b, c, etc.
I see no reference to a section 149A.
C.
 
149A was an insertion into the original Act specifically in relation to Bureau de Change activities. You could just ask about 149 in general actually as it covers all charges.
 
At last, a response from Central Bank

Please see below and extract from the Consumer Credit Act 1995 in reference to your query.

Examples of Products to which Section 149 Applies

· Credit cards;

· Loan accounts (including mortgage accounts);

· Personal current accounts;

· Business current accounts;

Commercial products such as letters of credit, guarantees etc.;

· Foreign exchange products.

Definition of a Charge

A ‘charge’ includes a penalty or surcharge interest by whichever name called, being an interest charge imposed in respect of arrears on a credit agreement or a loan. However, it does not include any rate of interest or any charge, cost or expense levied by a party other than a credit institution in connection with the provision of a service to the credit institution or the customer and that is to be discharged by the customer (see Third Party Charges below).

Examples of Charges to which Section 149 Applies

· Current account, term loan, overdraft or credit card charges;

· Mortgage charges;

· Foreign exchange margins and spreads;

Merchant service charges, e.g. charges imposed on retailers for the acceptance and processing of credit/debit cards; and

· Hire purchase charges.


I hope this information is of assistance to you.

Yours sincerely

Public Contacts Unit
Central Bank of Ireland
 
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