Updated by 07.20.2023
What Merchants Need to Know About Collecting Convenience Fees
As a consumer, you’ve no doubt been charged a “convenience fee” for a credit card transaction.
But as a merchant, do you really understand the concept of convenience fees? Do you know how to answer when a customer asks why he or she is being charged a convenience fee and whether it’s legitimate? If not, read on.
Let’s start by defining what a convenience fee is and isn’t. A convenience fee is an additional charge for goods or services, beyond the amount a customer owes the merchant for these goods or services alone. It is called a “convenience fee” because the merchant charging it has provided the customer with another way to make a payment outside the “standard channels” it uses to complete transactions. For example, moviegoers typically buy their tickets at the theater box office, but there are options that allow them to do so remotely using a credit card with an additional, legitimate convenience fee tacked on.
This should not be confused with a “ServiceFee” provided by a Service Provider for a service that they are providing to a consumer. For example, money-sending and processing services like WesternUnion™, MoneyGram™, and even us, E-Complish charge a fee to use their systems to gather, process and send monies. The customer pays a fee for the services provided. Paying a fee for the service is not a convenience fee, it is a service fee. For the purposes of this article, we are focusing on a convivence fee that a merchant can charge for goods and services.
Contrary to popular belief, charging a convenience fee is not a way for merchants to make money and neither merchants nor consumers should look at it in such a light. It’s merely a way for merchants to recoup in other words, be reimbursed for the costs they incur to accept a credit card payment and not a penny more. What’s more, merchants are only permitted to ask for convenience fees for credit card transactions. Debit and prepaid card transactions are ineligible for these fees even if the customer selects the “credit” option rather than the “debit” option at the point of sale.
It’s also important to understand that each card brand has its own requirements pertaining to convenience fees. Visa’s rules are the most stringent, mandating not only that the payment to which a convenience fee is added takes place across an alternative channel, like the Internet or telephone, but also that customers must be told about the fee in advance or that its existence be clearly disclosed. Merchants cannot charge a percentage of the sale as a convenience fee; rather, the fee must be a flat or fixed price. Merchants must also provide another option for payment that allows consumers to avoid the convenience fee, for example, mailing a check instead of paying by credit card.
Tax payments are an exception to Visa’s regulations. While the card brand’s regulations do prohibit merchants from charging convenience fees for credit card transactions if credit card transactions are the norm for their operation, Visa cards can be used for credit card-based tax payments, providing that the consumer is willing to pay a convenience fee in order to make the payment. This is because income taxes are governmentally mandated, and federal statutes prohibit the Internal Revenue Service from paying costs associated with card acceptance.
Like Visa, Mastercard only allows convenience fees to be charged if the payment is outside “normal channels”. Nonetheless, under the Mastercard Convenience Fee Program introduced in 2008, government agencies and educational institutions can collect a convenience fee for credit card transactions. AmericanExpress permits its merchants to charge a convenience fee for certain transactions, like taxes and tuition, but these merchants must offer payment conveniences such as online options or kiosks in order to collect the fee. Discover has yet to introduce a convenience fee policy but does require that its merchants handle all credit card transactions in the same manner at the point of sale. Consequently, other card brands’ convenience fee rules apply to Discover by default.
It should be noted that not every merchant can charge a convenience fee, even if it meets the “outside normal channels” criteria discussed at the beginning of this blog. Why? Not all states allow merchants to charge convenience fees. California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas as well as Puerto Rico have enacted laws that put a ban on these fees.