“Visa and Mastercard could face a bill of at least $500 million for poorly disclosing fees to people who use their cards overseas, writes Paul Beckett in today’s Wall Street Journal.

“For U.S. consumers, the problem with foreign-exchange conversion fees in the past could mean they may see those charges spelled out more clearly in the future.”

“In a preliminary decision currently under seal in a California state court, Judge Ronald M. Sabraw last week sided with plaintiffs in a suit against Visa International, Visa USA Inc. and MasterCard International Inc., according to people familiar with the matter. At issue: a claim that currency-conversion fees imposed on foreign purchases weren’t adequately disclosed to cardholders. The judge will issue a final decision once he has received further written and oral arguments from both sides in coming weeks, these people said.”

“If the California judge affirms his opinion, the decision could have wide — and expensive — ramifications for Visa and MasterCard, the two largest payment networks, and could expose them to similar suits in other states. The move also could bolster the plaintiffs’ cause in another suit related to the disclosure issue now pending in federal court in Manhattan against the card networks and the largest banks that issue Visa and MasterCard cards. Many of those banks charge their own foreign-currency conversion fees. Visa, MasterCard and the banks deny the allegations in that suit.”

“When a cardholder makes a purchase overseas, Visa and MasterCard charge a wholesale foreign-currency conversion rate plus 1% to the banks that issue credit cards. Those banks, such as Citigroup Inc.’s Citibank unit and Bank One Corp., then pass along that charge to cardholders. Many card issuers tack on additional charges of as many as two percentage points.”

“Judge Sabraw of California Superior Court in Oakland, in his tentative opinion, didn’t ban the charging of currency-conversion fees, which generate hundreds of millions of dollars of revenue each year for Visa, MasterCard and the card-issuing banks, people familiar with the matter said.”

“But the judge did say that because of what he believed was inadequate disclosure to cardholders, Visa and MasterCard would have to refund many cardholders who have paid the 1% surcharge since 1996, these people said. The judge also ruled that Visa and MasterCard would have to mandate that banks that issue their cards disclose the fee clearly in statements in the future. Visa and MasterCard are associations that are owned by the banks that issue cards on their networks.”