Convenience fee is a cost that a business is charged when a customer pays using an electronic card instead of an accepted method of payment that is accepted by the company. The most common payment methods are cash, checks as well as the automated Clearing House (ACH) transfer. Convenience charges can be a set amount as well as a proportion of transaction amount, which is typically from 2% to 3 percent, and should be made known to the consumer in advance. The types of transactions where the payer typically has to pay convenience fees are the mortgage payment, property tax payments, college tuition and tax.
Understanding the Cost of a Convenience Fee
Convenience fees can allow a company to pay for some of the expenses that are incurred through online payment processing. Businesses are required to pay a merchant cost each when the one of their customers utilizes credit cards. 1 For many businesses, including grocery stores and department stores the merchant fee is an expense for operating. In contrast the movie theater or concert venue usually accepts payments via the theater’s box office. Therefore, the alternative payment channel like telephone or online with credit card will result in extra charges for them. Therefore, they’d have to charge the convenience fee when doing business that method.
It’s important to remember that a convenience charge is distinct from surcharge. A surcharge allows you to charge an additional amount just for the benefits of using a credit card , whereas the convenience fee is intended to be used for a specific purpose like the payment of taxes or tuition or other channels like telephone and online. 2
An example of a convenience fee
Imagine that you want you could pay for Internal Revenue Service (IRS) with a credit card. The IRS accepts credit card payments from a number of various payment processor companies which all have convenience fees in accordance with the credit card companies. A company might be charged 2.49 percent, with an $3.95 minimum, whereas another could be charging 3.93 percent with minimum of $2.00 amount. 3 Thus in the event that you have to pay an amount to the IRS $2,000 and want to pay with a debit or credit card, then you might be charged the maximum convenience fee of 0.0393 multiplied by $2,000 = $78.60.
Convenience Fee Regulations
Certain people may be willing to pay a cost to benefit from having an electronic credit card, especially if the potential for getting rewards with the card outweighs the expense of the convenience charge. However, this method is controlled by states and card networks. Since it is a law that regulates companies must be careful when introducing convenience fees and surcharges to customers.
Surcharges are banned in 10 states. These include California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas and the District in Puerto Rico. 4 The bans are now in doubt in some courts, who argue that they restrict a company’s right to free speech. States in which surcharges are legal permit merchants to decide their own rates for surcharges, with caps typically around 4percent. 5
Credit Card Company Policies on Convenience Charges
Every credit card company has its own rules regarding convenience charges. Some are more rigorous than others. Here are the rules of some of the most prominent credit card companies:
MasterCard:Allows to charge convenience charges in the event that they are can be used in all transactions and payment methods. 6
Visa It allows convenience charges only when the transaction is done via another channel for example, a phone or online and the company first informs the customer and the cost is flat not a percentage percent of the sale. 7
American Express:American Express’s policy doesn’t include surcharges or convenience fees. 8
Discover: Discover’s policy does not also include surcharges or convenience fees. 9
How to avoid paying for convenience fees
There are two choices with regards to convenience fees: either pay the fee in cash or choose a different payment method like cash. In many instances, establishments, such as gas stations, provide discounts for customers who pay with cash. Always ask the business if they provide discounts on cash. Convenience charges are intended to be made clear at the time of purchase and if you’ve been charged for a transaction later on it’s crucial to bring this issue up by contacting the credit card company.