A number of states ban card surcharges. But, depending on the type of business you run and your location, you might be allowed to charge convenience fees or offer cash discounts.
Dear Your Business Credit,
We run a small private preschool within a church facility in the state of Oklahoma. We have been using credit cards for years but have noticed that the transaction fees are hurting our budget.
We want to add a convenience charge of $5.00 to each credit card transaction.
Is this legal in Oklahoma? – April
It does not appear that you can add a convenience charge. States that have no-surcharge laws include California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Texas – and Oklahoma.
However, the state of Oklahoma allows sellers to offer a discount to people who pay by cash or check. This is what Oklahoma Statute 14A, 2-211 (1982) says about discounts:
“With respect to all sales transactions, a discount which a seller offers, allows or otherwise makes available for the purpose of inducing payment by cash, check or similar means rather than by use of an open-end credit card account shall not constitute a credit service charge as determined under Section 2-109 of this title if the discount is offered to all prospective buyers clearly and conspicuously in accordance with regulations of the administrator of Consumer Affairs.”
See related: Surcharges grow more common, even in states where they’re banned
Credit card surcharges not allowed in Oklahoma
As the statute above explains, surcharges are not allowed.
“No seller in any sales transaction may impose a surcharge on a cardholder who elects an open-end credit card or debit card account instead of paying by cash, check or similar means,” the statute says. “There is no limit on the discount which may be offered by the seller.”
Charging convenience fees in Oklahoma
As for convenience fees – which are sometimes allowed in industries where credit card payments are not the norm – they are permitted for some educational institutions in Oklahoma, but I could not find any indicator that they are allowed for preschools.
A private educational institution may charge a convenience fee, under the state statute 14A-2-417, provided it meets the definition of a private educational institution under paragraph (e) of 73102 of Title 70 of the Oklahoma Statutes.
“The convenience fee shall be limited to bank processing fees and financial transaction fees, the cost of providing for secure transaction, portal fees, and fees necessary to compensate for increased bandwidth incurred as a result of providing for an online transaction,” the law says.
Charging convenience fees as an educational institution
However, these educational institutions must meet the definition set out in title 70.
According to Title 70, “state educational institution” refers to “any institution supported wholly or in part by direct legislative appropriations and offering courses of education of any kind beyond or in addition to the twelfth grade, or its equivalent, as such grade is generally understood and accepted in the public school system of Oklahoma, whether called a university, college, junior college, school or academy.
“Private educational institution’ means any private, denominational or other institution of the same type as a state educational institution except that it is not supported wholly or in part by direct legislative appropriations.”
Seek legal advice before charging fees
Resolution Legal Group published an article that looks further at the situation for merchants in Oklahoma. It notes that many sellers in the state are charging fees illegally. It’s worth checking out.
The laws related to credit card processing are in flux in many states so if you are making changes to how you process credit cards, I’d highly recommend making a call to a local attorney who works with credit-related issues to make sure you handle every detail properly.
Readers in other states may want to review a previous article I wrote about private schools and convenience fees, as card issuers’ rules may come into play, even if a state’s laws allow them.
Good luck, April. Running a pre-school is important work. Sometimes, distracting issues like credit card processing fees can get in the way, but perhaps a discount program for those paying via cash or checks will ease the strain on your budget.