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Legal, Regulatory, and Privacy Issues

What are credit card convenience fees?

Credit card convenience fees are part of the cost of using a card

Summary

Paying with a credit card often yields rewards. But in certain situations those benefits come at a cost, not just through interest, but in the form of convenience fees

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Paying with a credit card often yields rewards, so why not buy everything with a credit card and earn big rewards? Because credit card convenience fees can get in the way. Credit card purchases, both large and small, can have extra costs in the form of convenience fees.

As a result, some of the biggest expenses you may put on a credit card – including taxes, rent and tuition – probably won’t be the financial slam-dunk you thought they were.

What is a convenience fee?

Convenience fees are charges levied for the privilege of paying for a product or service using an alternative payment, or a payment method that is not standard for the merchant. Average convenience fees are anywhere between 1.3% and 3.5%.

A great example is Ticketmaster. While tickets to a concert may be advertised at $50 each, after processing, service, facility and service fees, you end up paying much more at checkout for buying the tickets online than in person. Since Ticketmaster and other companies like it operate strictly online, you’re paying for the convenience of buying your event tickets through an app or website.

Credit card network convenience fee guidelines

Visa, Mastercard and American Express have guidelines that merchants must follow if they want to process card transactions on their networks. The regulations that card networks impose include but are not limited to:

NetworkConvenience fee guidelines
Visa
  • Credit card convenience fees cannot be charged for in-person transactions.
  • These fees cannot be charged for general acceptance of Visa cards.
  • The convenience fee must be disclosed before the transaction is completed and must be a flat or fixed fee unrelated to the payment amount.
American Express
  • The convenience fee must be disclosed to the customer.
  • The fee must be the same for all forms of payment in that channel (over the phone, online or by mail).
  • The fee can be charged on in-person payments, recurring payments and installments (such as subscriptions, utility bills, insurance premiums).
Mastercard
  • Credit card convenience fees must be disclosed to the customer as a fee for using the payment channel.
  • Convenience fees can be charged for in-person, phone, online, kiosk or mail payments.
  • The convenience fee is not allowed to be higher than other card-based payments.

Convenience fees vs. surcharge fees

While credit card convenience fees are added on for completing a transaction remotely – like online, via mobile app or over the phone – surcharges are fees that merchants impose for using a credit card rather than cash during an in-person transaction.

Most issuers frown upon the use of surcharges, and Visa even requires merchants to notify it at least 30 days before a merchant intends to surcharge credit card sales. Furthermore, Visa requires merchants to post signage at the point of sale that discloses the surcharge policy.

The states where surcharges are prohibited or limited include:

  • California
  • Colorado
  • Connecticut
  • Florida
  • Georgia
  • Kansas
  • Maine
  • Massachusetts
  • Minnesota
  • New York
  • Oklahoma
  • Puerto Rico
  • Texas

However, merchants are allowed to offer discounts for customers who pay in cash rather than by card. For example, a business may apply a flat $0.10 discount when someone pays with cash, but offer no discount for card-based payments.

Different types of credit card processing fees

Interchange fees

Interchange fees are the charges that businesses pay to card issuers when a customer uses a credit or debit card at their store. When a merchant processes a customer’s transaction, an extra percentage of that sale is tacked on and paid by the merchant to the card issuer.

Assessment fees

Not to be confused with interchange fees, which are charged per credit card transaction, assessment fees are charged on a merchant’s total monthly sales completed with each issuer. At the end of each month, the merchant pays a percentage of that month’s sales completed by each credit card brand back to the issuer.

Payment processing fees

Merchants and businesses usually apply payment processing fees when customers pay bills with a credit card – like utilities, rent payments, tuition and more – online through a payment portal. These processing fees are usually added to the amount processed and the customer pays them on top of the bill.

How to avoid credit card convenience fees

Not surprisingly, many consumers are unhappy with convenience fees and believe merchants should eat the costs.

In one famous example, Verizon felt the wrath of its customers when it announced in December 2011 that it would charge customers a $2 convenience fee if customers paid with credit or debit cards through the company’s website or via telephone. The company quickly reversed its decision after a flood of complaints.

Here’s what you can do to avoid credit card convenience fees:

  • Link your bank account using the account number and routing number to opt for ACH (automated clearing house) transactions. Since this is a payment directly from your bank account, no credit card payments are processed, thus there are no fees.
  • Try to pay in person, if possible.
  • Avoid merchants and businesses that apply card processing fees.

Remember that surcharges and credit card convenience fees are different. While processing fees are allowed by most issuers and state governments, surcharges are not. If you’ve been issued a surcharge, contact your card issuer and give them the name and location of the merchant.

If you live in one of the states where surcharges are illegal, file a complaint to the Consumer Financial Protection Bureau.

Bottom line

Fees tacked onto online credit card transactions aren’t new, and you’ve probably seen them when you pay for utilities or rent online. While convenience fees for processing online credit card payments are common, you may avoid them by directly linking your bank account for automatic clearing house payments or paying by mail. However, surcharges for using a credit card at a register when dining out or shopping are prohibited in many states and shouldn’t be included in your final sale.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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