Monday, June 22, 2009

Banker's Math: Part Trois

I’ve written about this twice before in blogs about refinancing our mortgage and about bank charges for free services. A recent incident with my credit card (none other than Citibank) prompts yet another rant now.

My wife and I recently traveled to Australia. Some of the hotel arrangements were prepaid through Travelocity (prepaying is often cheaper, so it can be a good deal if you’re sure your plans won’t change). In going over my credit card statement after we returned, however, I noticed that one of the hotels charged us for the room even though it was prepaid. They must have caught their error, however, because a couple of weeks later the charge was reversed. No problem, right?


The erroneous charge was made in Australian dollars. Citibank graciously converted this to U.S. dollars — for a 3% “foreign transaction fee.” The 3% was calculated on the U.S. dollar amount. This is irritating enough, but it gets much worse. During the several weeks after the erroneous charge the Australian dollar became stronger against the U.S. dollar so that when the hotel reversed the charge for the same # of Australian dollars, the refund in U.S. currency was less than the original amount. Let me emphasize this – the reversed charge after conversion was less than the original charge, and we are out the difference. In other words, WE paid for the HOTEL’S mistake. Now for the kicker – Citibank refunded the foreign transaction fee, but recalculated it on the new U.S. dollar amount. Got it? Citibank PROFITED from the hotel’s mistake and we got screwed twice!

To be fair, I guess this whole thing might have worked to our advantage if the U.S. dollar had gotten stronger during the interim between the erroneous charge and the refund. But I just bet that buried somewhere in the fine print of the 30+ page contract with Citibank there is a clause that says if the exchange goes in the client’s favor then the excess will be nullified. The real point, though, is that the refunds for both the hotel’s error and Citibank’s conversion fee should be the same in U.S. dollars as the amount initially charged, regardless of whether the exchange rate goes up or down.

Anything else is Banker’s Math.

1 comment:

Coleen Hanna said...

I think that most of the time the institution finds a way to benefit from its own error. We often don't know how it is done, but it's done. We chumps are more ignorant than we think we are.