Charging Customers a Credit Card Fee at Checkout

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 also important to note that credit card convenience fees are different than credit card surcharges. Let’s take a closer look at convenience fees.

• Surcharges vs. Convenience Fees
• Guidelines for Credit Card Convenience Fees
  • Visa
  • Mastercard
  • Discover
  • American Express
• Exceptions and Special Programs
  • Visa Government and Higher Education Payment Program
  • Mastercard Convenience fee Program
• Credit Card Convenience Fees on a Case-by-Case Basis
• How can your business pay less for processing?
• Offer a Discount Instead of Convenience Fees or Surcharging
• Raise Prices Across the Board

Surcharges vs. Convenience Fees

Firstly, it’s important to start with definitions of the two terms, as they are not interchangeable.

Surcharges are when you charge a fee to customers for using a credit card. This applies to all customers paying with a credit card for any transaction. Surcharges are assessed as a percentage of the transaction amount, typically capped at 4%.

Convenience fees are when you charge a fee to customers for the convenience of paying outside of your usual channel (for example, paying over the phone) no matter what payment method they use. That may include credit cards. Convenience fees are assessed as a flat dollar amount, not a percentage.

In 2013, businesses won the ability to charge customers a fee simply for paying with a credit card. (Read more about the Visa and Mastercard settlement here.)

A few states still prohibit surcharging, and surcharges are still not allowed on debit transactions. Read more about the settlement and surcharging in CardFellow’s article about charging credit card fees to customers.

This article will focus on convenience fees, not surcharges.

Each of the four major card brands has a slightly different policy concerning the topic.

We’ll start by outlining the general guidelines regarding convenience fees, and then get into what it all means – and, ultimately, if and how your business can pass processing fees to your customers.

Guidelines for Credit Card Convenience Fees

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

Visa

Visa publishes its convenience fee policy (along with their other policies) in their   The document is available on the company’s website.

While it is subject to change, Visa’s current published policy states:

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 assessed as follows:

1. Charged for a bona fide convenience in the form of an alternative payment channel outside the Merchant’s customary payment channels and not charged solely for the acceptance of a card
2. Added only to a Transaction completed in a Card-Absent Environment
3. Not Charged if the Merchant Operates exclusively in a Card-Absent Environment
4. Charged Only by the Merchant that provides goods or services to the cardholder
5. Applicable to all forms of payment accepted in the payment channel
6. Disclosed clearly to the cardholder:
   1. As a charge for the alternative payment channel convenience
   2. Before the completion of the Transactions. The Cardholder must be given the opportunity to cancel.
7. A flat or fixed amount, regardless of the value of the payment due
8. Included as part of the total amount of the Transaction and not collected separately
9. Not charged in addition to a surcharge
10. Not charged on a Recurring Transaction or Installment Transaction

Let’s break down what these requirements mean.

1. The two key components in this sentence are alternative payment channel and not charged solely for acceptance of the card. By alternative payment channel, Visa is stating that a business can only charge a convenience fee when accepting a payment in a way that isn’t their typical method. For example, a business that normally takes payments in person but accepts a payment over the phone may be able to charge a fee for the convenience of a customer paying by phone.The second part – not charged solely for acceptance of the card – means that it can’t be a surcharge simply for paying with a credit card. There must be an element of convenience for the customer for which they are paying a fee.
2. This sentence states that businesses can only add a fee for transactions that are not swiped / where the card is not present. For example, payments made over the phone.
3. If a business ONLY takes cards in non-swiped methods (for example, all over the phone or all online) they may not charge a convenience fee.
4. Only the business that provides goods / services can charge the convenience fee, not any other party.
5. If a business imposes a convenience fee, it must be for any type of payment, not just credit card. (For example, checks.)
6. The convenience fee can’t be hidden. It must be explained as a fee for the convenience of paying in an alternate method. It must be communicated to the customer before the payment is made and the customer must have the option to choose to cancel the transaction to avoid the convenience fee.
7. The convenience fee must be a flat dollar amount, not a percentage. It cannot change with the size of the transaction.
8. It must be included in the total, not run as a separate transaction.
9. Businesses can’t add both a convenience fee and a surcharge. If your business adds a fee for credit card use, you cannot add another fee (convenience fee) for accepting the card.
10. Businesses can’t charge convenience fees for recurring payments – these are any payments that repeat on a regular basis, such as gym memberships or other subscriptions.

Mastercard

Mastercard’s convenience fee guidelines that pertain to most businesses appear in the  ment, in section 5.12.2.

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.

In this paragraph, Mastercard states that a business can charge a convenience fee if the fee applies to all transactions, no matter what payment method the customer uses.

As with Visa, Mastercard prohibits “double-dipping” – that is, a business can’t add both a convenience fee and a surcharge. Mastercard states this in the Rules, saying:

A merchant that wishes to Surcharge a Mastercard Credit Card Transaction is prohibited from applying a Surcharge if the Credit Card Transaction already attracts convenience fees or service fees as permitted by rule 5.12.2.

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, which the company does not publicly post. A version from 2011 can be found here:

Discover rules for surcharging from that document 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.

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.

If you’re considering adding convenience fees to transactions and you accept Discover, be sure to check with your processor for any updated information prior to implementing the fees.

American Express

American express has vague restrictions on convenience fees, and they more or less defer to the guidelines set forth by the other three major card brands. In the past, American Express outlined their convenience fee guidelines, for example in this 2011 document – in section 3.2 of the  ike Discover, American Express didn’t post the Merchant Regulations on their website.

At the time of this update, Amex does post a version of general Merchant Regulations, but it is not the full document, and guidance about convenience fees is minimal. In fact, it is limited to disclaimers for specific industries (such as government agencies and rental companies) which states that those industries cannot charge higher convenience fees than they would for other cards. It states that the business can impose a convenience fee, but that it must clearly be disclosed to the customer and the customer must have the option to cancel the sale if they do not wish to pay the convenience fee. American Express further requires that any explanation of the convenience fee (either verbal or written explanations) must characterize the convenience fee as an assessment to cover the business’s administrative costs.

Aside from that, most of Amex’s guidance centers around not treating Amex cards differently than the other card brands. Specifically, Amex states

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.

All of these regulations are aimed at ensuring that Amex is not treated differently by a business or negatively described to customers in ways that other credit cards are not.

Exceptions and Special Programs

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

Visa Government and Higher Education Payment Program

(Formerly Visa Tax Payment Program)

Visa has a program with special guidelines for convenience fees for entities that accept tax payments such as municipalities or federal agencies.

Technically, Visa refers to the fees you can impose under this program as “service fees” not convenience fees. Visa also states that you cannot charge the Government and Higher Education service fee in addition to a convenience fee or a card surcharge; it must be the only additional fee you charge.

The fee can be fixed or variable, but you must:

1. Disclose it to the customer prior to checkout and provide them an opportunity to cancel the transaction
2. Process the service fee as a separate transaction
3. Not charge the service fee in addition to a convenience fee or credit card surcharge.
4. Be registered by your acquirer

The main transaction must include the government authority or educational institution’s name in the “merchant name” field and a customer support phone number in the “merchant city” field. Additionally, you must include your state in the “merchant state” field.

The separate service fee transaction must include the name in an appropriate location (position 3, 7, or 12) along with an asterisk in the next position and the words “service fee.” You must also list state and a customer support phone number as you did in the main transaction.

Eligible Merchant Category Codes

Only certain business types are eligible for this program. That includes the following merchant category codes (MCCs.)

• 9311 (taxes)
• 9222 (fines)
• 9211 (court costs)
• 9399 (misc. government services)
• 8220 (college tuition)
• 8249 (trade schools)

This list is subject to change at Visa’s discretion.

In addition to having an eligible MCC, you’ll need your acquirer to register you with Visa in order to participate in the Government and Higher Education Payment Program. Contact your credit card processor for more information on the registration process.

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 fees in many cases. So, colleges and universities can’t accept Visa if they want to charge a fee for MasterCard, Discover and American Express.

For historical purposes, we’ve included The Mastercard Convenience Fee Program guide below. The guide was from 2011, so be sure to check with Mastercard or your merchant service provider for the latest information on this program before making any decisions about convenience fees within your organization or business.

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. Here, we’ve outlined the card brands’ guidelines as they apply to most businesses.

If your business accepts Visa:

In the past, Visa forbade virtually all convenience fees, but now permits them in some circumstances. 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 you can typically look at the Visa rules and determine your ability to charge convenience fees from there.

• 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. As noted earlier in this article:
  • The fee must be for a bona-fide convenience, accepted outside of your typical methods.
  • The fee must be disclosed to the customer prior to completing the transaction so they have the opportunity to cancel the transaction.
  • Be charged only as a flat fee regardless of the transaction amount. The fee cannot be a percentage of the transaction.
  • You must charge the same convenience fee for all card brands and payment types. For example, you would have to charge customers paying with a check the same convenience fee that you charge those paying with 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.

How can your business pay less for processing?

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 or defray the cost of credit card processing.

Offer a Discount Instead of Convenience Fees or Surcharging

A major loophole that makes it possible for all businesses 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 and state laws.

In fact, Visa even discusses this in the Core Rules, stating, “A Merchant may request or encourage a Cardholder to use a means of payment other than a Visa Card[…] by methods that include, but are not limited to:

Offering the consumer an immediate discount from the Merchant’s list, stated, or standard price…”

In this section, Visa explicitly says that businesses can encourage customers to use payment methods other than a Visa card (for example, cash). The site explains that one way to encourage customers is to offer an immediate discount (that is, a discount at checkout) from the price that was on the shelf or menu.

MasterCard also mentions discounts 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.

The downside to discounting 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. However, many customers see discounts as a perk or benefit, compared to viewing surcharges or convenience fees as penalties.

You can read more about cash discounts in our article: Eliminating Credit Card Fees with Cash Discounts.

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 typically 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.