Can You Charge Credit Card Convenience Fees?

credit card convenience fees

Credit card convenience fees are a common way to offset those sometimes exorbitant charges that merchants have to pay, but are they a good idea? And more importantly, are they even legal? You may get into big trouble for imposing any types of surcharges, including convenience fees.

Why Some Merchants Impose Credit Card Convenience Fees

Credit card surcharges were once big business in the world. The Treasury estimates that these charges accounted for £473 million in 2010 alone. In the U.S. and in other countries, they remain common. The reason comes down to cost mitigation.

Convenience Fees Offset Merchant Fees

Banks charge retailers an average of 10-20p per debit card transaction and .6% per credit card transaction. In addition, merchant services providers can impose a range of fees including maintenance fees, terminal fees, batch fees, interchange fees, gateway fees, and more. Those fees can really cut into a company’s profit margins.

Convenience Fees Encourage Other Forms of Payment

For merchants, credit card payments are sometimes costlier than other forms of payment (like e-check, cash, or digital wallet). If the business wants to encourage consumers to use these alternative payment methods as opposed to credit/debit cards, it might impose credit card convenience fees as a deterrent.

Credit Card Convenience Fees vs. Surcharges

A surcharge is any added payment imposed on a credit card transaction.

A convenience fee is a type of credit card surcharge designated for paying the taxes, fees, and other expenses accrued when a customer chooses a credit card over other methods of payment.

With that said, a convenience fee is a subset of surcharges that must meet specific criteria. For instance, the cost must be relative to the cost incurred by the business for managing the payment channel. In addition, the customer must have the option of using other payment methods that don’t incur a surcharge.

In addition, different credit card companies have different rules for imposing convenience fees. For instance, Visa requires the following:

  • Convenience fees can only be used for online purchases
  • The fee must be a flat or fixed amount regardless of the purchase value
  • Merchants that operate solely online are not eligible
  • The fee must be clearly disclosed before the transaction is finalised
  • The fee must be included in the total cost of the transaction (not issued as a separate charge)
  • The fee cannot be used for recurring payments
  • The fee cannot be combined with another surcharge
  • The fee must be clearly identified on the customer’s receipt

Of course, these rules only apply in places where convenience fees are legal in the first place.

Are Credit Card Convenience Fees Legal?

As of January 2018, credit card convenience fees are illegal Europe. The rule began with a directive from the European Union, which banned surcharges on Visa and Mastercard payments. Some countries took it further and banned the same types of fees on American Express and PayPal charges.

The law was put into place amid years of controversy surrounding high convenience charges in the travel industry. Convenience fees were especially prevalent among airlines, affecting consumers who booked flights online. Years of consumer complaints may have contributed to the new law.

The law applies to all types of credit card surcharges, not just convenience fees. Still, reports indicate that the rule has been difficult to enforce. The BBC uncovered numerous businesses still imposing surcharges in 2019, while conceding that the issue was most often the result of ignorance on the part of the retailer.

Still, if Trading Standards determines that your business is imposing surcharges, you could face fines and/or imprisonment. It’s not worth the risk.

Can You Charge Credit Card Convenience Fees In Europe?

Most credit card surcharges are banned throughout the European Union. Across the pond in the United States, the laws vary from state to state. Currently, surcharges are banned in 11 states and territories:

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

To confuse matters, though, credit card convenience fees are exempted from most of these surcharge laws. States like California, Connecticut, and Massachusetts have laws expressly allowing merchants to incentivise consumers to use alternative forms of payment.

So if your convenience fee is imposed in accordance with the credit card company’s requirements and you do offer alternative methods of payment, the law doesn’t consider it a surcharge. If your business is based in the U.S., research the laws in your particular state.

Disadvantages of Credit Card Convenience Fees

If your business is based in the EU, you may be disappointed to learn that convenience fees are off limits. However, when you consider the downsides of these surcharges, it becomes apparent that they’re not necessarily in your best interest to begin with.

  • Consumers have a negative impression of convenience fees. Many believe that it’s just a way for companies to reap additional profits. This can reflect poorly on your business, even if you’re just trying to stay afloat amid increasing merchant fees.
  • Convenience fees can put businesses at a competitive disadvantage. When Ticketmaster started charging convenience fees, many buyers felt alienated. This allowed up-and-coming competitors like Live Nation to rise up and entice buyers with the promise of lower prices.
  • Convenience fees require you to learn and follow a complex labyrinth of regulations that can vary between nations, states, and even credit card companies. Failure to follow these regulations can have costly consequences.

We’ve seen some of these disadvantages played out in the real world. In 2011, Verizon faced severe backlash in the U.S. after announcing that it would impose a small convenience fee to customers who paid with credit or debit cards. The pushback was so strong that the company quickly reversed its decision.

Consumers in Europe have been similarly resistant to such charges. The controversy surrounding travel surcharges hit its peak in 2011, when a family of four could incur £48 in convenience fees just for a return flight. This prompted an official super-complaint and ultimately contributed to the banning of such charges.

If you want to maintain a stellar reputation and a positive customer experience, it’s best to avoid credit card convenience fees altogether.

Alternatives to Credit Card Convenience Fees

There still remains the question of how to offset the credit card fees and merchant fees that your business incurs in the first place. You have several options:

  • Raise prices by 1-2%. If you’re indeed struggling to turn a profit because of credit card fees, the most basic choice is to adjust your pricing accordingly. You don’t want to price yourself out of the market, but even a slight adjustment can go a long way toward offsetting those fees. And as long as the increase is incorporated into the product price and not imposed as a separate fee, it’s perfectly legal.
  • Offer other incentives for using alternative payment methods. For instance, you might streamline the checkout process for other forms of payment, making it easy for customers to pay quickly. Just note that your incentive cannot be in the form of a discount. If you charge less for alternative forms of payment, law still considers this a surcharge on credit cards, even if you’re not promoting it as such.
  • Choose a merchant services provider with lower fees. Sometimes, the problem boils down to being overcharged for payment processing in the form of excess fees or a high transaction fee. Shop around for alternative online payment processing solutions, and see if you can find a better deal. At Unicorn Group, we offer competitive rates that are simple and straightforward. Each transaction incurs a fixed percentage and fee, and the rate is the same for each card you accept.

There are many ways to cover your costs, but if you do business in the European Union, you’ll want to just say no to credit card convenience fees.