Businesses and Credit Card Convenience Fees
They're allowed in some cases
With an increase in direct deposit payments, debit cards, and credit cards, fewer and fewer people are using cash and checks for transactions. But when making a credit card payment to a business, many are shocked to find the business charging a credit card convenience fee.
Is this legal? Are businesses allowed to charge a convenience fee to customers who just want to use their credit cards? in short, yes. But the specifics are governed by credit card network policies and some state laws.
Credit Card Convenience Fees
A convenience fee is a fee that a business charges customers who use credit cards rather than another form of payment that's standard for the business. For example, a business that traditionally accepts check or ACH for transactions but has offered credit card payments for convenience may charge an additional fee for that convenience.
Convenience Fees vs. Surcharges
Credit card convenience fees and surcharges are often used interchangeably, but they're not the same thing. A surcharge is a fee charged to customers simply because they're using a credit card. Most merchant credit card agreements prohibit merchants from charging surcharges on transactions. Moreover, surcharges are illegal in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Texas, and Puerto Rico.
While credit card issuers may not be allowed to charge a surcharge on credit card transactions, they are sometimes permitted to offer a discount for customers who pay with cash. You may have noticed some gas stations, for example, have one price set for credit card payments and a slightly lower, discounted price for cash transactions. This practice is allowed in California, Colorado, Connecticut, Maryland, Massachusetts, Nevada, Oklahoma, Washington, Wisconsin, Wyoming, and Puerto Rico.
Why Businesses Charge Convenience Fees
While credit card convenience fees are a nuisance and additional expense for consumers, businesses that charge the fee often have a legitimate financial reason for doing so.
It actually costs money for businesses to process credit card payments. Credit card processing companies charge a fee on every credit card transaction businesses run, and companies usually have to pay for the software and hardware for processing credit cards. There are additional administrative and bookkeeping costs that come with accepting credit cards as well.
Rather than charging individual transaction fees, businesses that routinely accept credit cards typically build the cost into their prices. This is especially true for businesses such as major retailers that routinely sell products and services directly to the public.
Other businesses bill you directly only for the cost of certain services you've used, rather than padding credit card processing costs into the price you're charged.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.
Rules About Convenience Fees
Merchants that accept credit cards are bound by the agreements they have with the credit card networks. These agreements outline the various things merchants can and can't do when they're accepting credit cards. Credit card processing networks such as Visa, MasterCard, American Express, and Discover have varying rules about whether merchants are allowed to charge a convenience fee.
- Visa, allows convenience fees, but generally only when the payment takes place across an alternate payment channel, such as by phone or online, when the customer is informed of the fee ahead of time, and the merchant charges a flat rate, not a percentage of the transaction.
- MasterCard allows convenience fees as long as they are imposed on all similar transactions, regardless of payment method.
- American Express similarly allows convenience fees when they are equally imposed on similar transactions (aka not a penalty for using a card). Any convenience fee must be clearly disclosed before payment, and the customer must have the option to cancel the transaction.
- Discover doesn't have a policy on credit card convenience fees. Instead, the credit card issuer only requires that merchants treat all credit cards the same. That means merchants can't charge a convenience fee on Discover credit card transactions, but not on Visa transactions.
Convenience fees may also be charged on debit card transactions, since these cards are often processed the same as credit cards when used online, over the phone, or at payment kiosks.
What You Can Do About Convenience Fees
If a company is charging a legal credit card convenience fee, consumers really only have two choices. Either pay the fee or choose another payment method.
In some cases, you may not be able to avoid paying a convenience fee, particularly if you don't have another payment method. While it's a nuisance, it's one you may have to accept occasionally for the ease of using your credit card. The fee won't catch you by surprise since merchants are required to let you know ahead of time that you'll be charged a convenience fee.
Unlike other types of credit card fees, the convenience fee is included directly in the transaction. If you're making a $100 transaction and the merchant charges a $12 convenience fee, your total purchase amount would be $112. Make sure you have enough available credit or enough money in your checking account to completely cover the transaction.
Once you know a business charges a convenience fee, you can plan for it the next time you have to make a transaction with that company, or you can plan to use another payment method. For example, some businesses will process ACH transactions using your checking account and routing number without charging you any fee at all.
Convenience fees may seem small at the transaction level—often only $3 or $4. However, if you're paying multiple convenience fees each month, they can easily add up. Be sure you're paying attention to companies' policies about these charges.
National Conference of State Legislatures. "Credit or Debit Card Surcharges Statutes." Accessed Feb. 5, 2020.
Visa. "Visa Rules and Policy." Accessed Feb. 5, 2020.
Mastercard. "Mastercard Rules," Page 107. Accessed Feb. 5, 2020.
American Express. "American Express Merchant Operating Guide," Pages 91-92. Accessed Feb. 5, 2020.
Discover. "Gas Q & A." Accessed Feb. 5, 2020.