Understanding Convenience Fees
All merchants are allowed to charge their customers a convenience fee for using a credit card rather than another form of payment that’s standard for the business. For example, a convenience fee may be added if their customer uses a mail or telephone order if a business primarily accepts payments in person. With that said, there are some specific guideline from the card brands merchants follow in order to charge convenience fees.
An Overview of Convenience Fees
It costs money for businesses to process credit card payments. A fee is charged on each credit card purchase a customer makes by a credit card processing company. Businesses also have to pay for the software and hardware for processing credit cards.
The cost of accepting credit cards is typically built into the prices of the goods and services merchants sell. This is especially true for merchants selling products and services directly to the public. Other businesses bill you directly only for the cost of certain services you’ve used. The price you’re charged typically isn’t padded with credit card processing costs by these businesses.
Credit card convenience fees can only be charged when a merchant is offering an alternative method of payment, one that’s different from how it normally conducts business. This distinction exists because the fee is applied towards the way the transaction is handled, for the “convenience” of providing the alternate payment method. To clarify: a zoo in Kansas may not impose a convenience fee at the register, if that is how most people buy their tickets. However, if they launch a program which allows individuals to purchase tickets online a convenience fee may be added. The convenience fee is paid because of the online payment, and not specifically because the customer used a credit card.
Utility companies, landlords, and government entities, for example, often bill you directly for the amount you owe. With these businesses, it’s likely free to pay by check or ACH. But, if you want to use a credit or debit card to take care of your bill, you may have to pay a convenience fee.
The card brands policies vary when it comes to convenience fees, different card brands have different policies.
Visa has certain criteria that must be met in order for a merchant to charge a convenience fee:
- The payment must take place across an alternative payment channel.
- Customers must be told about the fee in advance.
- The fee must be a flat or fixed price rather than a percentage of the sale.
- The fee must be included in the total transaction amount.
- The fee must be applied to all means of payment that are accepted in that alternative payment channel.
However, tax payments don’t have to meet all of those criteria. The reasons for this distinction: Income taxes are government mandates, and federal statute prohibits the Internal Revenue Service from paying the costs associated with credit card acceptance.
In the last several years MasterCard has created the MasterCard Convenience Fee Program for government agencies and educational institutions that were not accepting card payments at the time.
It is an effort to make sure that consumers are given the choice in how they want to pay. Since the organizations can charge convenience fees, the cost of accepting credit cards is less prohibitive.
However, they still must offer an alternative payment channel. MasterCard leaves the fee structure up to the organizations in the program.
Under American Express’s policy, select transactions do qualify for convenience fees including taxes and tuition.
However, a merchant must provide an actual convenience in the form of payment, for example, online payment, interactive voice response or a payment kiosk. The fee must also be clearly disclosed before the transaction is completed.
While Discover doesn’t have an official convenience fee policy, it requires that all credit cards be treated the same, says Kathryn Henry, a spokeswoman for Discover.
As a result, the rules instituted by the other card issuers would apply to Discover since a merchant cannot levy a fee on a Discover cardholder that it isn’t allowed to impose on a MasterCard, Visa or American Express cardholder.
Convenience fees are permitted in all states. However, laws govern when a business can and cannot charge their customers a fee.
Convenience fees must be clearly displayed and disclosed at the point of sale. Therefore, if you discover a fee only after the transaction is processed, you can submit a complaint with your credit card network. The network will then follow up with the merchant in question.
The rules that govern convenience fees do not apply to government and educational institutions. These organizations are allowed to charge convenience fees both in person and online.
Some customers complain about convenience fees, but merchants often charge them in order to provide the convenience of utilizing an alternative method to pay for the same products or services. As long as basic rules are followed in applying a convenience fee the merchant will be able to process convenience fee transactions without any problems.