Surcharges and Conveniece Fees – Can You Charge Your Customers?

Robb Lejuwaan — Thu, 14 Aug 2008 15:22:19 +0000

Last night I went out for dinner with my family and some friends. We all love authentic Mexican food so we went to a real “whole in the wall” restaurant and ate some incredible food. When I was about to pay the cashier I noticed a hand written sign hanging from the wall saying, “$.60 fee added for all Visa and MasterCard transactions.” This an example of what the credit card associations call surcharges or convenience fee.

Are these fees acceptable according to Visa and MasterCard?

The short answer is almost always no. Here are the actual policies regarding these fees:

Visa Rules for Surcharging

Visa Rule: Section 5.2.F of the Visa Operating Regulations Prohibits Surcharge

A Merchant must not: Add any surcharge to Transactions (Travelers cheques and Foreign Currency fees and commissions, as specified in Section 5.2.E, are not surcharges.)

Visa General Rules for Convenience Fees

Visa Rule: Section 5.2.E of the Visa Operating Regulations state:

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
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 prior to 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

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.

A Convenience Fee must not be added to a Recurring 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.

MasterCard General Rule for Surcharging

MasterCard Rule: Section 9.12.2 of the MasterCard Bylaws and Rules state:

A merchant must not directly or indirectly require any MasterCard cardholder to pay a surcharge or any part of any merchant discount or any contemporaneous finance charge in connection with a MasterCard card 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.

A surcharge is any fee charged in connection with a MasterCard transaction that is not charged if another payment method is used.

MasterCard General Rules for Convenience Fees

MasterCard rules specifically prohibit merchants from adding a fee for acceptance of MasterCard-branded cards. This is considered surcharging. The prohibition on surcharging ensures that MasterCard cardholders are not discriminated against at the point of sale.

However, surcharging is different from a situation in which particular business cases may warrant imposition of a convenience fee for utilization of specific payment modes, such as internet and telephone. As long as the same convenience fee, (flat rate, percentage based, tiered rate) is applied to transactions made with all payment methods accepted within a specific payment mode (in person, mail, telephone, Internet, etc.) the convenience fee is not considered surcharging. Finally MasterCard does not permit convenience fees to be advertised as offsetting the cost of accepting MasterCard-branded cards.

So there you have it, after you review all the rules above you can see the guidelines are so stringent and what Visa does not cover MasterCard does or vis versa.

What Happens if You Ignore These Rules?

If you get caught charging these fees and you do not meet the guidelines stated above the results will be fines from both Visa and MasterCard. I do not know how they arrive at the fine amounts but I have heard they can be significant, like starting at $50,000. That number could be high but do you really want to find out?

Just in case you are wondering, “how would they catch me?” The answer is usually by a customer complaint. When Visa or MasterCard receive such a complaint they always investigate and aggressively pursue the merchant. They do this because it is in their best interest. Can you imagine if most merchants charged a convenience fee? People would start paying with cash and the associations could lose billions of dollars.

Bottom Line: Allowing your customers to pay by credit card is a convenience that, most of the time, will result in increased sales for your business. Therefore, I suggest you look at your merchant account fees as a simple cost of doing business and be glad you are able to accept them.

For another take on this issue see what people are saying at answers.com on this subject.

Do you agree? Disagree? Have some thoughts to add? Please comment below.

Merchant Account Blog - Straight Pass Through » Surcharging

Surcharges and Conveniece Fees – Can You Charge Your Customers?

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