Judge Ronald Sabraw's decision released Tuesday finalized a tentative ruling that had been under court seal since February.
The case centers on a 1 percent surcharge Visa and MasterCard add to the transaction amount of credit card charges requiring foreign currency to be converted into U.S. dollars. Concluding Visa and MasterCard have been concealing the conversion fee, Sabraw ordered refunds dating back to 1996.
Attorneys representing consumer interests in the three-year-old case described the decision as vindication for millions of cardholders who had been misled for years about the costs of their foreign charges.
"The days of chicanery and petty theft on a grand scale are drawing to a close for Visa and MasterCard," said Jim Baum, one of the attorneys who filed the lawsuit on behalf of California resident Adam Schwartz.
Visa, based in Foster City, Calif., and New York-based MasterCard called the decision confounding and vowed to appeal.
"During five months of trial, not a single consumer complained ... that MasterCard has deceived them, treated them unfairly, or harmed them in any way," said Noah Hanft, MasterCard's general counsel. "That's why we believe Judge Sabraw's decision to award restitution defies logic."
Because it's based in California, Visa is more deeply affected by the decision than MasterCard. Visa must issue refunds to cardholders throughout the country. The decision applies only to MasterCard's California customers.
Based on estimates drawn from evidence in the trial, Visa faces $740 million in refunds while MasterCard is on the hook for about $60 million, said Dennis Stewart, another of Schwartz's attorneys. The companies have not issued estimates.
In his 125-page ruling, Sabraw noted that Visa collected $817 million from its U.S. cardholders making purchases in foreign countries from 1996 through March 2002. That figure includes fees for debit card transactions.
MasterCard collected $195.5 million nationwide from foreign currency conversion fees from February 1996 through December 2000, Sabraw said in his ruling.
A May 23 court hearing has been scheduled to discuss how the rebates will be made.
The currency conversion fee is disclosed in the initial agreements distributed to Visa and MasterCard customers, but the surcharge doesn't appear in billing statements documenting the transactions. The fee instead is lumped into the total transaction price covering the item purchased in a foreign country.
Consumer attorneys argued that the practice violated California's unfair competition laws requiring clear disclosures and Sabraw agreed.
Although his decision said the credit card conversion fees appear reasonable, Sabraw concluded the surcharges undermined the free market because most consumers aren't aware of them.
If consumers knew about the fees, Sabraw reasoned they might look for currency conversion alternatives — discriminating behavior that could pressure the credit card companies to lower their fees.
As part of his ruling, Sabraw ordered Visa and MasterCard to better disclose the conversion fees in the future.
Visa and MasterCard ridiculed the notion that fees are secret, noting that the surcharges have been written about in newspapers and travel magazines for years. The credit card companies also contended that the banks issuing their cards ultimately should be held responsible for explaining the currency conversion fees to their customers.
A federal lawsuit in New York also targets Visa and MasterCard for their conversion fees. That suit also names several major banks that issue Visa cards and MasterCards.
The credit card companies said there's nothing wrong with bundling the conversion fees into the transaction prices that appear on customer bills.
Consumer attorneys contend cardholders have a right to know when financial services providers tack on extra fees to the price of the goods and services sold by another party.
By Michael Liedtke