Class Action Lawsuit Alleges Visa Manipulates Foreign Exchange Rates

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A proposed class action alleges Visa cardholders have had to pay more for certain transactions as a result of the finance giant’s profit-focused application of foreign exchange rates that are “largely a fiction” and do not represent those available in the wholesale market. 

The 31-page breach-of-contract complaint alleges that although Visa’s rules for card-issuing banks stipulate that the foreign exchange rates applied to foreign-currency transactions be at either a wholesale market or government-mandated rate, the company has profited off of its “hidden manipulation” of foreign exchange rates in that it makes money on the difference between the rate it imposes on consumers to engage in a foreign transaction and the rate, if any, Visa pays to acquire the foreign currency to settle the transaction.  

The case, filed in California federal court on July 9, further alleges that even when the foreign exchange rates applied by Visa are within the trading ranges of the individual currencies within the wholesale market for certain dates, the methods by which the company imposes the rates are unfair, in bad faith and therefore in violation of Visa’s rules and cardholder agreements.

Overall, Visa, rather than approximate the actual cost of acquiring foreign currency to settle consumer transactions, imposes instead, and member banks charge, foreign exchange rates designed to “maximize profits for the banks and Visa,” the suit alleges, contending that the foreign exchange rates levied against consumers are “always in the banks’ and Visa’s favor” (emphasis added): 

“For example, for any given processing date, the rate imposed for converting U.S. Dollars to Euros will be significantly different from the inverse rate for converting Euros to U.S. Dollars. In both instances, it will be outside—or at the very high end of—the daily ranges of wholesale market rates for each currency conversion. This means that the cardholder will always get the worst rate and Visa will always get the best rate.” 

Per the lawsuit, Visa cardholders reasonably expect that banks will charge wholesale exchange rates that at least somewhat resemble the rates Visa and the banks themselves receive when transacting in foreign currencies. In reality, however, banks and Visa “rarely” engage in wholesale market transactions to facilitate consumers' foreign-currency transactions, the suit says, and when they do, they will charge or be charged “genuine wholesale rates,” the case relays.  

According to the complaint, Visa settles many U.S. cardholders' transactions with foreign merchants in U.S. dollars, meaning neither the banks nor Visa engage in any currency conversion at all. In these instances, the lawsuit says, any charge imposed by Visa for currency conversion is “pure fiction,” and any “hidden charge” for such and/or manipulation of foreign exchange rates amounts to an unlawful breach of Visa’s rules and cardholder agreements, the suit alleges. 

“While the price the U.S. cardholder was quoted was in a foreign currency at the point of sale, the cardholder’s account was in fact debited in U.S. Dollars, and the foreign merchant was typically paid in the foreign merchant’s domestic currency,” the suit expounds. 

The lawsuit goes on to charge that even for transactions for which Visa actually settles in foreign currencies, the need for foreign currency exchange is “minimal.” Given the massive scale on which Visa engages in multilateral global transactions, the case says, the company is “constantly in possession of large amounts of various currencies,” and these balances indicate that Visa “only needs to engage in foreign currency transactions to settle any net currency settlement requirements,” according to the complaint. 

More granularly, the case additionally claims Visa and banks have engaged in creating fictional “bid-ask spreads,” i.e., the difference between the “bid” price of a foreign currency and its sell, or “ask,” price, and the manipulating the rate applied to proposed class members’ transactions so that cardholders “either always get the worse possible rate in either direction, or in fact are applied rates that are even outside of this fictional bid-ask spread…” This practice, according to the lawsuit, renders the promise of wholesale market rates illusory, as Visa is acting in a way “no party to the contract would have reasonably expected.”  

“In sum, the [foreign exchange] rates Visa imposes and that banks charge cardholders for foreign transactions are largely a fiction and represent a non-transparent charge,” the case alleges. They bear no resemblance to any exchange rate obtained or which could be obtained by the banks or Visa in wholesale markets, as many times Visa exchanged no currency whatsoever … or traded at spot or forward [foreign exchange] prices.” 

The case looks to represent all persons or entities with a Visa payment card who made a transaction in a foreign currency using such card within the applicable statute of limitations wherein the exchange rate imposed was not a government-mandated rate. The suit also looks to cover “subclasses” of persons or entities in Washington, California and Illinois who fit the same criteria.

The lawsuit mirrors another filed this month against T.D. Bank, N.A. in which a named plaintiff shared by both cases alleges TD cardholders with Visa-branded cards have been forced to pay excessive amounts for transactions involving foreign currency.  

“TD Bank’s illegal conduct has caused Plaintiff and the Class Members to pay more for foreign transactions than they would have paid if Defendant had complied in good faith with its contractual obligations to charge wholesale [foreign exchange] market rates rather than contrived rates,” the suit, filed on July 9 in New Jersey, alleges.

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