Convenience Fees and Surcharge Rules
Posted by mike on 01 Jul 2008 at 08:00 am | Tagged as: Education, General
We get a lot of questions surrounding the ability for merchants to charge their customers a surcharge or convenience fee for accepting credit cards. This post will attempt to provide a thorough overview of when convenience fees can be charged according to card regulations. We have also included excerpts from Visa, MasterCard, Discover, and American Express of the specific rules that govern the application of convenience fees. And if you are really interested and want nighttime reading, we have also included links to the complete operating regulations of these card brands here.
Here are the important points you need to know. The words “convenience fee” and “surcharge” are used interchangeably.
- A convenience fee cannot be assessed in a face-to-face environment
- A convenience fee cannot be assessed for recurring payments. The convenience fee was designed for one-time payments and not for payments in which a cardholder allows his credit card to be periodically charged for recurring goods or services. Examples of recurring charges include, but are not limited to, insurance premiums, subscriptions, Internet service provider monthly fees, membership dues, and utility charges.
- The merchant must provide a true “convenience” in the form of an alternative payment channel outside the merchant’s customary face-to-face payment channels, and the fee must be disclosed by the merchant to the cardholder as a charge for the alternative payment channel convenience that is provided.
- The convenience fee must be disclosed prior to the completion of the transaction, and the cardholder must be given the option to cancel the transaction if not wanting to pay the fee.
- The convenience fee must be included in the total amount of the transaction; it cannot be “split” out from the transaction amount.
- If a convenience fee is assessed it must be for all payments (V, MC, Discover, AMEX, ACH, Check) within a particular payment channel (mail, phone, internet).
- Since all convenience fees are required to be assessed equally, a merchant who accepts Visa is restricted to a flat convenience fee for all cards.
Let us know if you have any questions or if your understanding is different. Read the rest of the article here.
A convenience feee can be charged in a face to face situation for government entities and secondary education.
Thanks for the update Gene. Starting November 2007, MasterCard decided to allow governments to charge a convenience fee to customers who pay by credit card in face-to-face transactions and American Express adopted a similar policy in January 2008. MasterCard’s rules around this change can be found here.
Since Visa and Discover still have not followed suit with this change and since MasterCard and American Express will not allow a convenience fee to be assessed on their brands and not on Visa and Discover Cards, the practical implication is that government entities that want to charge a convenience in face to face transaction must only accept MasterCard and/or American Express. In other words, if a government accepts Visa cards, then it cannot charge a convenience fee on any credit card in face-to-face transactions.
Has Visa changed it’s policy now to allow for a convenience fee on a face to face government transaction?
Thank you for the question Mukesh! Visa does allow a “service fee” to be charged on face-to-face tax payments (only MCC 9311 – Tax Payments) as a percentage of the transaction. The Visa Tax Payment requires registration and the Service Fee must be a separate transaction.
A key component of the program is that the convenience fee be automatically calculated prior to authorization and then submitted and processed as a separate transaction from the fees or taxes being paid. Any Town, City or County that wants to assess a fee back on credit card transactions, regardless of whether it is online, over the phone, in the mail or in person must meet these requirements and must be registered with Visa.
Moreover, Visa requires a special convenience fee rate on their consumer debit cards for Tax Payments not to exceed $3.95. Percentage based fees on Visa consumer debit cards or fixed rate fees greater than $3.95 are prohibited. Government entities can utilize BIN (Bank Identification Number) file management so that Visa consumer debit cards are automatically identified on tax transactions and the $3.95 fee is automatically substituted prior to authorization. Read our other post to learn more about BIN file management…
So who goes punished when say utility companies (municipal gov’t run) allow for convenience fee %0 or in fact take a convneience fee front counter face to face? Or how about the many, many utility companies that take on long e-check say $1.95 and the convenince fee is say eith 3.25% or $3.95
Seems to me the regulators, authorities, merchant service banks are looking the other way and so is VISA
If a municipal government uses a third party service provider for online payments including Visa transactions, can the third party provider seperate out the convenience fee from the principal and deposit only the principal into the cities bank account?
Donovan, the scenario you suggest works for tax payments where two transactions can be run – the first transaction is for the tax amount and goes into the taxing authority’s account the secondary transaction is run for the convenience fee and can be deposited into the third party’s account.
For any non-tax payment, a single transaction must be run that combines both the original amount and the convenience fee. There are ways to manage this process so that the principal amount is deposited into the City’s account the secondary amount is deposited into the third party’s account. Let me know if you would like any additional insight.
As you may know, Visa/MC introduce new interchange categories and new schemes like allowing merchants to charge of convenience fees because they want to get new industries to adopt acceptance of credit/debit cards. As you suggest, there is a legitimate debate that could be had about the overall “value” delivered to consumers who are paying the convenience fee.
However, keep in mind that many utilities and municipal governments have to recognize/record 100% of revenue and they collect from their customers. Either by law or budget constraints they cannot pay credit card processing fees and therefore, have to charge convenience fees to offset merchant services fees.
I am urgently seeking information on VISA’s convenience fee regulations. We have a university wanting permission to charge a percentage-based convenience fee. According to the documentation I can access of VISA’s regulations, only a flat rate fee is permitted. I do recall having received permission from VISA in the past for a merchant to charge a percentage-based convenience fee. MasterCard regulations do allow for a percentage-based convenience fee, and I am hoping VISA does as well.