Perhaps the key to understanding what convenience fees are is to understand what they are not. Convenience fees are not surcharges, which are costs added simply for the privilege of using a credit card. As a result of long-standing litigation against the cards brands, merchants are now permitted to charge customers a surcharge for paying with a credit card. In order to charge a surcharge the merchants are required to register with the Card Issuer and check with their state law to ensure the fee is legal. At this time surcharges are illegal in 10 states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
Convenience fees, on the other hand, are charges levied for the privilege of paying for a product or service using an alternative payment channel or a payment method that is not standard for the merchant. For example, an automobile loan payment can be made at the dealership location. If a customer wants to pay over the phone or via web, he or she will be charged a convenience fee for this product. So technically, you’re not paying for the privilege of using your credit card, but for the privilege of paying by phone or over the web.
When it comes to convenience fees, there are many laws, regulations and rules to take into consideration; a lot of “what ifs.” Some regulations can be specific to an industry, some can apply to all. A comprehensive review should be completed prior to deciding whether or not your business is a candidate for the convenience fee model. An example of some of the rules includes:
- A flat or fixed amount, regardless of the value of the payment due
- Applicable to all forms of payment accepted in the alternative payment channel
- Disclosed before the completion of the Transaction and the Cardholder is given the opportunity to cancel
- Included as a part of the total amount of the Transaction
Finally, be sure to ask your payment processor for more information on their compliance programs before making the decision to accept convenience fees. Companies that provide this ability typically have compliance reports specific to this program. The laws continue to change regularly, so continued reviews of the laws and a review of different interpretations will continue to be necessary to ensure a compliant product.