Is it legal to charge a convenience fee for credit cards?

Is it legal to charge a convenience fee for credit cards?

“You must have come across a deduction of extra fee while using a credit card for a transaction. All the merchants are allowed to deduct the additional charge from the customers making a transaction using a credit card. This additional charge is like a toll for you to avail the easy payment facilities and other benefits while using a credit card. Using credit card comes under a non-customary channel of payment, and thus, a convenience fee is charged!”

With unexpected developments in the economic structures, the methods of direct deposits have also advanced to a greater extent. In the current scenario, one will hardly find anyone transacting via cash or cheque for merchandising. According to a survey in 2016, 75 percent of commoners on an average are opting for payments using a credit card rather than debits card for transacting.

So, if you’re one of them, you must have noticed the deduction of an extra convenience fee while making credit card transaction, physically, virtually online or using mobile phones.  

A user is liable to pay this additional charge for the use of credit card as per the guidelines of the credit card companies. But there are yet many questions related to this topic that is still under the clouds of confusion. Let us gain a bit deeper understanding of this topic by reading detailed information about the same.

What is a Credit Card Convenience Fee?

  • A credit card convenience fee is like an additional charge that is deducted by a company from the customers using a credit card for transactions.
  •  Credit card, being a mode of payment comes at an extra cost on processing that is borne by a merchant and passed on to the customers in the form of customer service charge.
  • But, it is entirely wrong to interchangeably understand this policy as surcharging.

Frequently asked questions

Credit card convenience fee might be an added expense for a customer, but every business has a valid reason that is directly related to the financial health of the company for charging this fee.

  •    When a merchant puts up an application terminal for credit card processing, he is liable to pay a processing fee on every transaction done via credit card.
  •    It implies that a small amount deducted from each customer accumulates as a significant expense for the merchant.
  •    Credit card companies charge a percentage on each purchase or transaction made using the card.
  •    Thus, when a business is accepting credit card as a mode of payment on a routine basis, then the cost of processing fee is added to the price of the purchase.

It is quite prevalent for merchants that are dealing with customer commodities and services. Direct customer dealing increases the usage of credit card and thus, the merchant bills up the processing fee regarding customer service charge with a description in the purchase receipts.  

It is often seen than convenience fees, and surcharges are viewed as the same thing. But, in reality, they both are different concepts. So, there is a need to have clarity of meaning for both the ideas.  

Surcharging is a strict fee levied upon customers just because of the use of credit card. According to merchant credit card agreement, merchants are not allowed to deduct a surcharging fee from the customers on transactions. Also, the surcharges are not legal in New York, Texas, Florida, California, Maine, Colorado, Massachusetts, Puerto Rico, Connecticut, Kansas, and Oklahoma.

Whereas, the credit card issuers are also not authorized to deduct a surcharge on the transaction made using a credit card. But, it is allowed to provide a discount equivalent to the processing fee to customers paying via cash.  

Besides these legal processes, and contract based agreements of the credit card companies and merchants, a business should also take into consideration the combating response of the customers on the situation of charging a convenience fee. A specific amount of every individual transaction will affect the consumers’ satisfaction level now and then.

 

There is no exact reference to the question that charging a convenience fee will lead to loss of customers to a merchant. But, we can consider few pointers for the same.

  •    For a lot of customers, charging the additional processing fee is similar to that of a price-raising strategy. It creates a common negative experience amongst the customers and also changes the mindset of the customers about the business.
  •    Looking from the business point of view, increasing the price all over the board will lead to inflammation in the market and unrealistic overpricing for all the commodities and services.
  •    This will offset the sales of the merchants and may lead to a sudden drop in the sales.
  •    Whereas, if the company does not charge any processing fee, it will lead to financial distress within the firm due to overrated expenses of card processing.

Also, it is seen that some of the merchants also determine a minimum limit of purchase to avail the transaction using a credit card. This gradually helps the merchants to avoid the higher fees for a minimal transactional amount.

But, customers also need to understand that this practice is essential to recover the overhead expenses of the credit card processing.

  •    Using credit card is like a luxury for the customers because it helps them to use money anywhere, anytime easily without any fear of shortage.
  •    Plus, cutting off the errands to ATM all the time and implied transaction fee that is useless to pay could also be a push towards the payment using a credit card.  

Other than this, there will always be an alternative available for paying via cash that will reap out the benefit of cash discount too. So, customers are still the kings, and they can rule over what they have to pay in all.

Contact us now