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Can Merchants Charge "Convenience" Fees to Accept Credit Cards?

Convenience Fees: What are They, and Can You Charge Them

What is a convenience fee?
It varies slightly from one card brand to the next, but a convenience fee is basically a charge in addition to the original transaction amount for the privilege of being able to use an alternate payment method. It sounds like the same things as a surcharge, but it's not that easy.

By VISA's guidelines, surcharges are different than convenience fees. By MasterCard's definition "any fee charged in connection with a Transaction that is not charged if another payment method is used" is a surcharge. So technically, VISA says that convenience fees and surcharges are different and MasterCard says they're the same thing. Are you confused yet?

Surcharging customers for paying with a credit card is considered discrimination based on payment type. A convenience fee is a charge for offering customers another payment option that is separate and in addition to standard payment methods.

For example, a retail merchant account that takes credit cards, cash and checks as payment can't charge a convenience fee on credit card transactions. This would be considered payment method discrimination because credit card payments are not offered as a bona fide convenience and the fee isn't applied to all methods of payment.  On the other hand, a utility company that primarily accepts payment via mail could charge a convenience fee on in-person credit card payments that they offer as a bona fide convenience to customers.

Can I charge a convenience fee, and if so, under what circumstances?
Different card brands have different rules on convenience fees, but VISA provides the most thorough guidelines.

VISA states (source: Card Acceptance and Chargeback Management Guidelines for VISA Merchants):
For merchants who offer an alternative payment channel (i.e., mail, telephone, or e-commerce) for customers to pay for goods or services, a convenience fee may be added to the transaction amount. If the merchant chooses to asses a convenience fee to its customers, the merchant must adhere to the following rules:

• The fee is being charged for a bona fide convenience of using an alternate payment channel outside of the merchant's normal business practice
• The Fee:

o Must be disclosed to customers as a charge for alternate payment channel convenience
o Is applied only to non-face-to-face transactions
o Must be a flat or fixed amount regardless of the amount of payment due
o Is included as part of the total transaction
o Cannot be added to recurring transactions
o Is assessed by the merchant that provides goods and services to the cardholder and not by a third party

• The customer must be given the opportunity to cancel prior to the completion of the transaction
If you do fall into the business category that can charge a convenience fee on VISA transactions, you'll notice that in addition to the other rules, the fee must be a flat rate regardless of the order total. This differs slightly form MasterCard's rules.

MasterCard (Source: "MasterCard Rules" Section "5.9.2 Charges to Cardholders")
MasterCard doesn't go into as much detail about convenience fees as VISA, they simply state that:
A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction. A Merchant may provide a discount to its customers for cash payments. A Merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used, or as the Corporation has expressly permitted in writing. For purposes of this Rule:
• A surcharge is any fee charged in connection with a Transaction that is not charged if another payment method is used.
• The Merchant discount fee is any fee a Merchant pays to an Acquirer so that the Acquirer will acquire the transactions of the Merchant.
While the rules for applying a convenience fee are in line with VISA, MasterCard allows a flat, tiered or percentage-based fee structure.

Discover (Source: "Discover Operating Manual", Section: "2.3 Surcharges")
Discover doesn't specifically give mention to convenience fees, but they do cover surcharges. For Discover, the two terms are interchangeable.

You may assess a surcharge on a Card Sale conducted using a Credit Card provided that (i) the amount of the surcharge may not exceed the Merchant Fee payable by you to us for the Card Sale, and (ii) you assess surcharges on card sales conducted using other credit cards accepted by you. You may not assess a surcharge or other penalty fee of any kind on any other type of Card Transaction or for any Card Sale conducted using a Card other than a Credit Card.

Discover states that "you assess surcharges on card sales conducted using other credit cards accepted by you." With this Discover has effectively deferred to other card brands for rules governing surcharges. Therefore, to surcharge Discover you'll also have to surcharge the other card brands that you accept - which will bring you back to VISA's more strict guidelines that differentiate between convenience fees and surcharges.

American Express (Source: "American Express Operating Procedures for US Merchants" section: "1.7 Prohibited Use of the Card" and "8.5 Apartment Rentals")

AMEX doesn't specifically mention surcharges in the "Prohibited Use of the Card" section of their operating procedures but they make specific reference to this section from the "Apartment Rentals" section of the same guide stating that:

"The prohibition in subsection 1.7 "Accepting the Card - Prohibited Uses of the Card" against imposing restrictions, conditions, or disadvantages (e.g., fees, surcharges, "convenience" or "administrative" fees, penalties) when the Card is accepted will apply whether or not your Rental Establishments impose them on any Other Payment Products."

There actually is no reference in subsection 1.7 that mentions surcharging, but it's obviously implied. In light of this, it's apparent that American Express also generally rules against convenience fees. If you'd like to make sure, we suggest that you contact AMEX directly, reference your merchant identification and request their convenience fee policy for your business's situation.

Courtesy of:  merchantcouncil.org

For more information on convenience fees or to find out how much money you could save with Charge Card Systems, click here for a free rate analysis.