Credit Card Processing, Legal

Charging Customers a Credit Card Fee at Check Out

by

In some cases, your business can charge customers a convenience fee for using a credit card, but there’s a maze of rules, exceptions and even state laws to navigate to ensure you stay compliant with the terms of your merchant processing agreement.

It’s important to note that credit card convenience fees are different than credit card surcharges.

In 2013, businesses won the ability to charge customers a surcharge for paying with a credit card. Ten states still prohibit surcharging, and surcharges are still not allowed on debit transactions. Read more about the settlement and surcharging in CardFellow’s recent article about checkout fees.

This article will focus on convenience fees, not surcharges.

Update: In early July of 2012 Visa and MasterCard settled a lawsuit with seven million businesses that will change the rules governing surcharging and convenience fees. Read more about the Visa and MasterCard settlement here.


The act of charging customers a fee to pay with their credit card is commonly referred to as checkout fees, convenience fees, or surcharging and each of the four major card brands has a slightly different policy concerning the topic.

I’m going to outline the general guidelines regarding convenience fees first, and then I’ll get into what it all means, and ultimately if and how your business can pass processing fees to your customers.

If you’re short on time, you can click here to skip the convenience fee guidelines and go right to the section that discusses whether your business can charge customers credit card processing fees.


Guidelines for Credit Card Convenience Fees

Each credit card brand has its own guidelines for convenience fees, as noted below.

Visa

As I’ll cover a little later, there are a few exceptions to Visa’s convenience fee guidelines, but the bulk of their policy is outlined on page 477 of their April 2011 Visa International Operating Regulations. Visa’s current published policy is as follows:

In the U.S. Region, except as specified otherwise for Tax Payment Transactions in “Tax Payment Program Fee Requirements – U.S. Region,” a Merchant that charges a Convenience Fee must ensure that the fee is:

  • Charged for a bona fide convenience in the form of an alternative payment channel outside the Merchant’s customary payment channels
  • Disclosed to the Cardholder as a charge for the alternative payment channel convenience
  • Added only to a non-face-to-face Transaction. The requirement for an alternate payment channel means that Mail/Telephone Order and Electronic Commerce Merchants whose payment channels are exclusively non-face-to-face may not impose a Convenience Fee.
  • 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

Convenience Fees Not Assessed by a Third Party – U.S. Region 5.2.E

In the U.S. Region, except as specified in “Tax Payment Program – Interchange Reimbursement Fee Qualifications and Fee Amount – U.S. Region,” a Convenience Fee may only be charged by the Merchant that actually provides goods or services to the Cardholder. A Convenience Fee may not be charged by any third party.

Convenience Fees on Recurring Transactions – U.S. Region 5.2.E

In the U.S. Region, except as permitted in “Tax Payment Program – Interchange Reimbursement Fee Qualifications and Fee Amount – U.S. Region,” a Convenience Fee must not be added to a Recurring Transaction.

MasterCard

I’ll cover MasterCard’s special regulations pertaining to convenience fees charged by educational and municipal merchants in a little bit. For now, the following is MasterCard’s convenience fee guidelines that pertain to most business taken from page 5-19 of their MasterCard Rules document.

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:

  1. A surcharge is any fee charged in connection with a Transaction that is not charged if another payment method is used.
  2. The Merchant discount fee is any fee a Merchant pays to an Acquirer so that the Acquirer will acquire the Transactions of the Merchant.

Discover

Discover rules regarding what they refer to as surcharging are less strict than Visa and MasterCard’s, but like Visa and MasterCard, Discover forbids convenience from being imposed on their cards if the same fees aren’t also applied to all other brands. Discover’s rules regarding surcharging can be found on page six of their Merchant Operating Regulations.

I’ve provided this document below because Discover does not publically post it on their Web site. The latest copy at the time of this writing is April 2011, going forward you will want to check with Discover to verify the latest information.

Discover rules for surcharging are as follows:

Section 2.5, Surcharges and Discounts
New terms permit you to offer discounts at the point-of-sale, as provided in the Dodd-Frank Act. You may offer differential discounts depending on the method of payment (e.g., credit, debit, cash or check), but such discounts may not differentiate based on issuer or payment network. If you operate in Canada, see Section 5.12 to identify differences that apply to discounts offered in Canada.

Equal Treatment of Cards with Other Payment Cards; Equal Treatment of Card Issuers
Other than with respect to discounts as permitted in Section 2.5, you may not institute or adopt any practice, including any discount or in-kind incentive, that unfavorably discriminates against or provides unequal and unfavorable treatment of any Person who elects to pay using a Card versus any other credit card, debit card, prepaid card, or other payment card that you accept (except for any proprietary payment card issued by you or any payment card issued under a formal co-branding relationship between you and a card issuer), and you may not in any way discriminate among various Issuers of Cards, except to the extent such restrictions are prohibited by Requirements of Law or permitted as set forth in Section 5.12.

Surcharges and Discounts
You may assess a surcharge on a Card Sale provided that (a) the amount of the surcharge may not exceed the Merchant Fee payable by you to us for the Card Sale and (b) you assess surcharges on Card Sales conducted using other cards accepted by you, in each case subject to the restrictions in Section 2.4; and (c) you otherwise comply with Section 2.4. You may not assess a surcharge or other penalty fee of any kind other than as set forth above. Effective upon publication of Release 11.1 of these Operating Regulations, you may offer discounts or in-kind incentives for payment by different tender types (e.g., a discount for payment by cash versus payment by credit card) subject to the restrictions in Section 2.4.

American Express

American express has pretty vague restrictions on convenience fees, and they more or less defer to the guidelines set forth by the other three major card brands. American Express outlines their convenience fee guidelines in section 3.2 of the American Express Merchant Regulations.

Like Discover, American Express doesn’t post the Merchant Regulations on their Web site. So, I’ve included it here so you can take a look. At the time of this writing the document is current (April 2011). However, going forward you should check with American Express for the most recent version of their regulations.

American Express has the following stance on convenience fees:

Except as expressly permitted by applicable law, you must not:

  • indicate or imply that you prefer, directly or indirectly, any Other Payment Products over our Card,
  • try to dissuade Cardmembers from using the Card,
  • criticize or mischaracterize the Card or any of our services or programs,
  • try to persuade or prompt Cardmembers to use any Other Payment Products or any other method of payment (e.g., payment by check),
  • impose any restrictions, conditions, disadvantages or fees when the Card is accepted that are not imposed equally on all Other Payment Products, except for ACH funds transfer, cash, and checks,
  • engage in activities that harm our business or the American Express Brand (or both), or
  • promote any Other Payment Products (except your own private label card that you issue for use solely at your Establishments) more actively than you promote our Card.

Exceptions and Special Programs

In addition to the published rules above, there are special programs as well as exceptions that may apply.

Visa Tax Payment Program

Visa has a Tax Payment Program with special guidelines for convenience fees for entities that accept tax payments such as municipalities or Federal agencies.

Currently, the Tax Payment Program allows a flat convenience fee of no more than $3.95 to be charged for tax payments made with a debit card, and a variable fee (percentage of the transaction) is permitted for tax payments made with a credit card.

I’ve included Visa’s Tax Payment Program Guide because it’s not readily accessible online. However, you should always check with Visa or your credit card processing services provider for the latest information regarding the Tax Payment Program prior to making any convenience fee policies for your business.

Businesses or entities that would like to charge a convenience fee to accept tax payments must be identified with merchant category code 9311, and they must be registered with Visa. Once registered, they must abide by the terms set forth in the Tax Payment Program Guide.

Visa’s Tax Payment Program Guide

MasterCard Convenience Fee Program

MasterCard allows pre-certified municipal and educational entities to charge convenience fees in certain circumstances. MasterCard’s main stipulation regarding convenience fees charged by educational and municipal institutions is that any fee must be applied equally to all card brands.

This is the reason that many colleges and universities have stopped accepting Visa branded credit and debit cards. MasterCard requires any fee on their cards to be applied equally to all card brands, and Visa forbids convenience fee on anything except tax payments. So, colleges and universities can’t accept Visa if they want to charge a fee for MasterCard, Discover and American Express.

Since it’s not readily available online, I’ve included The MasterCard Convenience Fee Program guide below. At the time of this writing the guide is current, but be sure to check with MasterCard for or your merchant service provider for the latest information on this program before making any decisions about convenience fees within your organization or business.

MasterCard Convenience Fee Program

How can your business charge customers a credit card fee?

Now that we’ve covered the convenience guidelines for each of the major card brands, let’s look at how your business or organization can charge customers a credit card fee.

Offer a Discount Instead of Surcharging

The major loophole that makes it possible for all business to indirectly charge customers to use a credit card is by offering a discount for cash or check purchases. The devil is in the details of how prices are portrayed to customers.

For example, a retail store would raise the price on everything in the store by 3%, and then place a sign at the register that says, “Get a 3% discount by paying with cash or check.” This roundabout method allows any business to pass processing costs to customers while still staying within the bounds of the terms set by the card brands.

In fact, Visa even mentions this method on their Web site by saying, “Retailers can encourage their customers to use other forms of payment, such as cash and checks, and can discount for PIN debit and cash and checks provided that the offer is made to all respective buyers.” Check it out for yourself here.

MasterCard also mentions discount in their convenience fee guidelines by saying, “A Merchant may provide a discount to its customers for cash payments.”

Thanks in large part to the recent Durbin Amendment, discounting versus surcharging is also acceptable within states that have specific laws banning surcharges on credit or debit transactions. I’ll go over individual state laws regarding surcharging in just a bit.

The downside to discount versus surcharging is that it may make your prices appear higher than your competitors, and you risk isolating or angering customers that prefer to pay with credit or debit.

Raise Prices Across the Board

Many people feel that offering a discount for cash or check payments is a pain, and that it does more harm than good to marketing and customer relations. If you’re of this mindset, the obvious option is to pass the cost of processing to your customers by raising prices across the board.

You won’t have to raise prices by as much as if you were offering a discount for cash because the increase is across all payment channels. A solid 1.5% to 2% price hike will do the trick to soften the blow of processing fees assuming your business has competitive credit card processing fees. An easy way to see if your rates are competitive is to get free instant credit card processing quotes here at CardFellow.

Credit Card Convenience Fees on a Case by Case Basis

There are a lot of “what ifs” when it comes to credit card convenience fees, and many people want to know whether the practice is acceptable for their business. If I tried, I’d be answering questions until I was blue in the face. So instead, I’ve outlined the card brands’ guidelines below as they apply to most businesses.

Note: Connecticut forbids surcharges on all forms of payments.

If your business accepts Visa:

Visa forbids virtually all convenience fees, and other card brands say you can’t impose a convenience fee on their cards unless you impose the same fee on all other cards. So, by accepting Visa, you largely negate your ability to charge credit card convenience fees at all.

  • You cannot charge a convenience fee under any circumstances if your primary method of acceptance is card-not-present, such as online or mail-order.
    • The only exception to this rule is if your company or organization is classified as MCC 9311, it accepts tax payments, and it’s registered with Visa’s Tax Payment Program.
  • You can charge a convenience fee if your primary method of acceptance is card-present (swiping cards), and you would like to offer customers who are unable to come to your place of business the convenience of paying with their credit card either online or over the phone. In such a case you must:
    • The fee must be for a bona-fide convenience. Meaning, it must be charged from something that’s outside your normal payment channel and sales process.
    • Disclose the convenience to the customer prior to completing the transaction so they have the opportunity to cancel the transaction.
    • Charge only a flat fee regardless of the transaction amount. The fee cannot be a percentage of the transaction.
    • Charge the same convenience fee for all card brands and payment types. For example, you would have to charge customers paying with cash the same convenience fee that you charge those paying with a credit or debit cards.
    • The convenience fee must be included as part of the total transaction amount.

If your business only accepts Discover, MasterCard, and American Express:

  • You can charge a credit card convenience fee on both card-present and card-not-present credit and debit transactions so long as:
    • The fee is only charged for a bona-fide convenience outside of the typical payment channels and sales process.
    • The fee is applied to all payment channels, including cash.
    • Your fee is capped based on the discount fee you pay on Discover branded transactions.
      Discover forbids the amount of any convenience fees from exceeding the discount that you pay on the transaction. So, while you can charge a fee, you have to limit the fee across all brands based on the discount fee you pay Discover.

If your business only accepts MasterCard and American Express:

  • You can charge a convenience fee on both card-present and card-not-present credit and debit transactions so long as:
    • The fee is only charged for a bona-fide convenience outside of the typical payment channels and sales process.
    • The fee is applied to all payment channels, including cash.

Surcharge Regulations by State

Ten states currently have laws pertaining to surcharges and discounting certain payment methods, such as cash. Visa has a good list of these states and their individual laws here, so there’s no reason to outline them in this article as well.

TwitterFacebookLinkedIn
Ben Dwyer

BY Ben Dwyer

Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing.As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.

FOUND THIS USEFUL? SHARE THIS!
 

Credit Card Processing exposed

Use the secrets that credit card processors don't want
you to know to drastically lower your credit card
processing fees.

Read Now!
 

You might also like…

Please join the conversation

Your email address will not be published.

30 COMMENTS

  1. from Rob, on April 16, 2018 01:00:54

    What about debit card “surcharges”? Drive through coffee stands, convenience stores and small restaurants in my city (Washington state) are all charging for debit card use on transactions below a certain dollar amount, ranging from $6-8 at coffee stands and teriyaki shops to $20 minimum at a convenience store. I thought this was illegal.

    • from Ellen Cunningham, on April 16, 2018 11:35:47

      Debit cards cannot be surcharged or subject to minimums. Credit card minimums are capped at $10.

  2. from Susan, on February 8, 2018 17:34:36

    Can a business that accepts only credit cards and not cash or check legally charge a surcharge?

    • from Ellen, on February 9, 2018 14:32:08

      Unless the business is in a state that prohibits surcharges, probably. Convenience fees would require another payment option.

  3. from Seriously?!, on February 1, 2018 14:29:47

    It’s very confusing especially amongst the 11 states that prohibit surcharge fees on credit cards:
    California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas—and Puerto Rico.

    Other states may have different laws about charging a ‘fee (i.e. convenience fee) for people who wishes to pay with a credit card.

    If people can pay with a credit card, obviously, it’s for convenience!

    Many merchants have slowly increased their prices to absorb the cost of the credit card fees but that’s the ‘hidden’ method of charging a fee. Those merchants ‘should’ then offer a ‘discount’ for people who pay by cash.
    ^

    I know of at least 2 restaurants that do provide a discount for cash customers.

  4. from Dana, on January 20, 2018 10:15:23

    Would I pay sales tax then on the credit card fee? Or is that deducted from the gross sales before I pay sales tax?

    • from Ellen, on January 23, 2018 10:42:50

      Hi Dana,
      You would need to check with your credit card processor to see how they set it up.

  5. from Chef Dawnelle, on December 18, 2017 07:39:42

    I am a small business caterer in Florida. Most of my business is from out of town clients for destination weddings. All expenses must be paid ten days prior to their event, so they are paying by credit card. I use Intuit Quick Books online payment processing and they charge my business 3.5% for each transaction for MasterCard and Visa. I am not set up do not take AMEX or DISCOVER. As you can imagine, the fee for catering can be anywhere from $75 to $300 and I have been passing that fee on to my client. Is that acceptable within the guidelines or do I have to refund these clients the fees?

    • from Ellen, on December 18, 2017 08:53:51

      Florida prohibits surcharging credit card transactions. If you meet the criteria for a bona fide convenience fee, that may be acceptable. It would be best to check the legalities with an attorney familiar with Florida’s rules and requirements, as we can’t provide legal advice.

  6. from MARTHA, on September 15, 2017 17:57:29

    HOW CAN I TELL MY CUSTOMERS THAT FROM NOW ON WE WILL BE CHARGING A CC FEE, DO YOU HAVE A SAMPLE LETTER?

    • from Ellen, on September 18, 2017 16:51:35

      Hi Martha,
      I don’t have a sample letter, but there’s specific signage you’ll also need to post. Your processor can help with that.

  7. from Ted, on May 13, 2017 09:41:09

    can a retailer charge you a processing fee and signify it as a tax on receipt? I thought only government entities could impose a tax.

    • from Ellen, on May 15, 2017 11:28:26

      The retailer has to disclose the fee on the receipt, yes; how it’s worded is likely subject to Visa/MC regulations and/or state laws. What does the retailer call the fee?

  8. from RJP, on March 17, 2017 23:12:27

    Hello,

    This is great stuff ~ what are the rules and restrictions for quoting some of this with attribution and linking back to this page?

    • from Ellen, on March 20, 2017 15:48:59

      Hi there,
      Thanks for asking! Any of the content can be quoted in small sections of a few paragraphs or less. Please include the link to the page you’re quoting from, and note in the text that it’s from CardFellow.com. So for example, “According to CardFellow.com: [Paragraph you’re quoting.](link)”
      Or for a shorter bit: “As CardFellow.com notes, surcharging is prohibited in some states” and linking one of the relevant words (like “surcharging”) to the page you’re referencing.
      I hope this helps!

  9. from Trianna, on May 1, 2016 07:31:21

    On MC rules book from 2014:
    5.9.2 Charges to Cardholders
    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:
    1. A surcharge is any fee charged in connection with a Transaction that is not charged if another payment method is used.
    2. The Merchant discount fee is any fee a Merchant pays to an Acquirer so that the Acquirer will acquire the Transactions of the Merchant.
    So agian they chnage the regulations againn?

  10. from Randy Makimoto, on February 2, 2016 05:58:37

    Is it legal for a web developer to add a processing fee for AMEX payment through email? There is no such fee if we pay with a check.

    • from Ellen, on February 3, 2016 13:59:42

      Probably, but it depends on a few different factors. There are 9 states that prohibit surcharging credit cards, so if you live in one of those it may not be permissible. However, many states do allow for charging “convenience” fees (different than surcharges) when there is a bona fide convenience, which things like paying by phone or email may fall under. Finally, a company’s agreement with Amex generally requires that they only apply fees to Amex if they also apply them to other cards, but it *is* legal to add fees to Visa and MC transactions, so some businesses add fees to all their credit card payments. Cash and checks are not subject to fees, and businesses can choose to add fees to credit card payments but not cash/checks, or they can choose to offer discounts for paying with cash or check.

  11. from jodie, on June 8, 2015 14:05:24

    Visa forbids a convenience fee if the primary way of accepting payment is non face-to-face. But what if my primary way of accepting payment is by check and there are only a few payments I accept by credit card and they are over the phone? Could I then charge a convenience fee?

    • from Ellen Cunningham, on June 9, 2015 10:13:48

      Hi Jodie,
      There are so many factors involved in regulations for surcharging that it’s difficult for us to advise on specific situations. Your best bet would be to check Visa’s surcharging regulations or contact them directly. Visa has lots of information here: http://usa.visa.com/merchants/merchant-support/merchant-surcharging.jsp

  12. from Frank, on January 21, 2013 14:57:45

    I am on the board of a non-profit Tennis Club in Richmond,VA. We would like to apply a 3% surcharge on people paying their monthly bill by credit card. We will take Amex, visa and master card. Is this legal? How would you present this to the membership?

    • from Chris Harrison, on January 13, 2016 15:35:03

      It is legal and you can do it if most members who pay with a credit card do so face-to-face.

    • from Steve, on May 29, 2015 12:42:11

      We are a RV Park Co-Op in the state of California. Our members pay equal quarterly Maintenance Fees that cover our expenses. Some members have asked to pay their fee by credit card. We have a merchant card machine for renters to our park. If we allow those members to pay their fee by credit card, the bank fee’s will have to be shared by all members (even those who would not use their card). Seems unfair to non participating members. Can we charge a “convenience fee” to members who would use their credit cards?

      • from Ellen Cunningham, on May 29, 2015 12:54:13

        Hi Steve,
        The Surcharge Regulations by State heading at the end of the article above includes a link with information about surcharging in California. If you have specific questions about legalities, it’s always good to consult an attorney to be sure.

        • from Lindsay, on September 21, 2015 19:41:59

          The link to the Surgcharge Regulation per State does not work. Do you know where else to find this info? Thanks!

          • from Ellen Cunningham, on September 23, 2015 16:32:31

            Hi Lindsay,
            Sorry about that, it looks like Visa updated their site and that page was moved. You can find the regulations by state by scrolling down on this page of Visa’s site.

        • from Steve, on May 29, 2015 18:18:06

          Thank you.