Merchant Convenience Fees – What is Allowed and What is Not
February 26th, 2010 Filed under: Uncategorized — Credit Card Author |
A recent trip to a local doughnut shop in Thousand Oaks, California revealed a disturbing sight: a bright yellow sign stating, “A fee of $.50 for every debit or credit card sale”. Being completely appalled by either ignorance of the law or complete dismissal of their merchant account agreement, I decided to write an article for merchants deciphering what fees they are able to charge customers and what practices could have their merchant account terminated.
Card associations make a clear distinction between surcharges and convenience fees. Surcharges are completely prohibited on credit and debit card transactions. Placing a surcharge on a credit or debit card sale is considered payment method discrimination and is illegal.
Convenience fees, on the other hand, are allowed to merchants who offer an alternative payment channel (mail, telephone, or e-commerce) for customers to pay for goods or services. The transaction must be a non face-to-face transaction and the service being offered must be a “bona fide” (or authentic) convenience. The payment method must be outside of the merchants’ normal business practice and apply to all forms of payments, such as an option to pay a utility bill over the Internet.
Other mandates for charging a convenience fee are:
1.Disclosure of fee to customers.
2.Non face-to-face transaction. Retail businesses cannot charge a convenience fee.
3.Flat or fixed amount, regardless of bill amount.
4.Fee is applied to all forms of payment accepted in the alternative payment channel.
5.Convenience fees cannot be added to recurring transactions.
6.The merchant providing the goods or services must charge the fee. A third party is barred from charging a convenience fee.
7.The customer must be given the opportunity to cancel prior to the completion of the transaction.
8.Convenience fees cannot be advertised by the merchant as an offset to the cost of accepting credit cards.
Retailers charging surcharges or adding convenience fees for customers using debit* and credit cards seems to be becoming more common. Online consumer blogs are filled with dissatisfied customers who were unlawfully charged an extra fee for using their credit or debit cards. Retail merchants must understand that such practices can lead to closure of their merchant account and possible placement on the TMF (Terminated Merchant File). Once a merchant is placed on the TMF obtaining a new merchant account can be extremely difficult.
Before risking your merchant account and charging a surcharge or convenience fee to your credit or debit* card paying customers, consider giving a discount to customers paying with cash. The discount would be given to those customers paying with cash and would be clearly disclosed as a discount compared to the standard price. Before giving a cash discount ensure that you are obeying all applicable laws and disclosures.
*Some states allow fees to be applied to PIN-based debit card transactions.
Emily Shap of PaymentMax Processing invites you to learn more about PaymentMax Processing at http://www.paymentmax.com.
