Credit card payments provide for easier and more convenient transactions and have become a go-to method of payment for both customers and merchants, especially during the COVID-19 pandemic. However, merchants have long been strapped with processing fees assessed by credit card processing companies for each credit card transaction run by the merchant. As these processing fees (also called "swipe fees") can be up to 5% of the charge to the credit card, many merchants try to find ways to pass these fees on to the customers. One way merchants, including storage facilities, choose to pass processing fees on to cardholders is by charging a similar fee to customers. Many facilities call this fee to customers a convenience fee or a surcharge, but there are distinct differences between convenience fees and surcharges that facilities should be aware.

Convenience fees are not technically related to the use of credit cards, but rather are fees charged to the customer for the use of an alternative payment channel outside of the merchant's usual payment channel, regardless of the type of payment used. It is a fixed price fee added to the purchase price to help the merchant recoup the cost of the additional payment channel. The classic example of a convenience fee is a movie theater charging a fee for the purchasing tickets online instead of purchasing the tickets at the box office. Another example would be a merchant charging a fee to a customer for payments made over the phone when there are alternative ways for the customers to make the same payments to the merchant without incurring the fees.

Convenience fees are generally permitted as long as they meet rules set forth by the credit card companies. Some of these rules include, but are not limited to, only charging the fee in non-face-to-face transactions (e.g. not at the facility) and the customer must have another channel in which to make the same payment without incurring the fee. If the only payment channel provided to the customer is online payment, a convenience fee generally cannot be charged in that situation, as the customary payment channel is exclusively non-face-to-face and there is no payment alternative for the customer that does not require the convenience fee.

However, if a merchant is not careful, a convenience fee could end up being a surcharge. A surcharge is a specific fee added on by the merchant solely for the use of a credit card. Surcharges are generally a percentage of the sale and are used to cover the processing fees charged to the merchant.

Important to know is that surcharges are prohibited by state law in various states. At present, Connecticut, Colorado, Kansas, Maine, Massachusetts, and Oklahoma have anti-surcharge laws on the books (although the Oklahoma Attorney General recently issued an opinion that the Oklahoma anti-surcharge law is unconstitutional). The majority of these laws state that no seller in any transaction may impose a surcharge on a customer who elects to use a credit card in lieu of payment by cash, check, or similar means.

Additionally, surcharges were once banned by the credit card companies themselves; however, this changed in 2013 with a settlement agreement in a class action lawsuit against Visa and MasterCard which now allows merchants to charge fees to customers who use a Visa or Mastercard credit card to make a payment. The other credit card companies followed suit.

The distinction between a convenience fee and surcharge is also important because the credit card companies treat them differently and have different rules for the fees. Some rules for surcharges set by Visa and MasterCard may include, but are not limited to, the following: specific caps on the amount of the surcharge that can be passed on to the customer using the credit card; requirement that merchants notify the credit card company in writing prior to charging fees to customers for the use of credit cards; surcharge must be the same for all transactions of that particular product; and surcharge must be the same for all types of credit cards.

It is also important to note that a surcharge on payments made with a debit card or prepaid card is prohibited by Federal law. However, a cash discount program for customers who pay by cash, check or debit card is permitted under Federal law.

Given the complicated nature of charging convenience fees and surcharges, if you wish to start charging such fees, consider consulting with an attorney regarding your state law and your credit card company regarding your intent to do so to ensure that you do not end up violating your agreement with them.


Author: J. Ashley Oblinger Thumbnail: Photo by cottonbro from Pexels


J. Ashley Oblinger

Ashley Oblinger practices in the area of business and commercial litigation, focusing on banking, landlord-tenant, construction, and employment law. Ashley represents clients in litigation matters concerning collections, garnishments, commercial leases, and construction disputes. Additionally, Ashley counsels self-storage facilities clients across the country on an array of issues including rental agreement drafting, lien enforcement, statutory compliance, and operational matters. Ashley also assists clients in all legal matters related to breweries and distilleries including entity selection and organization, corporate governance, regulatory matters, business disputes, insurance coverage issues, employment disputes, collection of accounts receivable, real estate purchases and leases, and all areas of construction.