What you need to know about Convenience Fees and Surcharging

A convenience fee, also called a surcharge, is an additional cost added to the final amount of a transaction. Usually this cost is part of an online experience, like when purchasing movie or concert tickets. It can also be charged in order to cover any processing costs.

To better explain these types of charges, I’ll break them down into two categories. The first, Convenience Fees, will refer to the movie ticket experience and the second, Surcharge Fees, will be more specific to the credit and debit card transactions.

 Convenience Fees

When purchasing a ticket online for a movie or a concert there is often an additional cost for purchasing the ticket online versus purchasing directly through the box office. The online service provider, like Fandango for example, charges this fee in order to provide the online purchasing experience.

A few common traits of these kinds of charges:

– The fee amount is charged on all transactions through that channel and would not be applied if purchased at the point of sale. For example, the fee is charged online but not at the box office.
– Payment type is not a “trigger” for the fee. All transactions through the particular payment channel are charged the same fee.
– The fee is a flat fee versus a sliding scale fee ($2 instead of 2%) and is charged based on quantity over total transaction amount. In our movie example, the fee would be charged on the number of tickets and wouldn’t change if you were purchasing a matinee ticket instead of a full-price ticket.
– The fee is a small amount

When charged in the described manner, these types of fees are often within legal boundaries and comply with card brand rules. (Disclaimer: We are not lawyers and are not offering professional advice. If you choose to charge a convenience or surcharge fee, seek a professional opinion.)

 Surcharge Fees

A surcharge fee is typically utilized to offset processing fees and can be helpful in cases where the total transaction amount is large and the profit margins are small, however, organizations need to be careful when considering charging a surcharge fee. We’ll use a school accepting a credit card payment for tuition as a surcharge fee example.

Surcharge Fee characteristics:

– The fee amount is charged regardless of the payment channel. The school applies the fee to both online and in-person transactions.
– Some payment types are not charged the fee. Tuition payments made by credit or debit card are charged the fee and cash, check or eCheck are not charged.
– The fee is a large flat amount, a sliding scale or a percentage. Example: tuition payments are charged a 2% on the total payment amount.

State Law

10 states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas) now prohibit credit card surcharges and a few more are considering similar legislation. Visa keeps a list here,but reviewing your state’s current laws directly would be the safest choice. There is also the potential that cardholders from restricted states should also be exempt from the surcharge even if your state allows the charge. Example: You live in Washington State (It’s beautiful here, come join us!) which allows surcharges but the cardholder is in California. Best bet would be to not charge this cardholder without a professional legal opinion on your particular situation.

Card Brand Rules

Up until recently, surcharging was generally prohibited by the card brands. Some exceptions were made for certain types of organizations, such as schools, but each of the brands had slightly different rules.

With the initial settlement of the Visa/MasterCard lawsuit in 2013, the surcharge fee restrictions were lifted assuming merchants followed some guidelines (Visa Guidelines and MasterCard Guidelines) including the following:

– You must notify the card brands at least 30 days prior to charging a surcharge.
– The amount must be clearly displayed to the cardholder at the point of sale and displayed clearly on the receipt.
– Surcharging must be legal according to state law
– The fee amount must not exceed the costs you currently pay for processing.

Cash Discount

One “loophole” that is allowed, even if other options are not available, is a cash discount. This would allow you to have the same net impact in charging credit card customers but approaches the issue from a different direction. For example, if you have a product that you typically sell for $100 you can advertise the price at $103 and then offer a 3% “discount” for those paying with cash or check.

Bottom Line

Charging a Convenience Fee or a Surcharge could be a great solution for your organization either to cover the costs of offering your particular online service or to cover processing costs in a tight margin scenario.  In any event, carefully review your options and talk to a few professionals to make sure you’re following all of the rules and laws. Give us a call at 800-811-7826 Option 1 and we’re happy to answer any questions and help get you started.