Paying with a credit card often yields rewards. But in certain situations those benefits come at a cost, not just through interest, but in the form of convenience fees
Paying with a credit card often yields rewards, so why not buy everything with a credit card and earn big rewards?
No one could blame you for thinking that way, but some of the biggest expenses you may put on a credit card — including taxes and tuition — probably won’t be the financial slam-dunk you thought they were. Credit card purchases, both large and small, can have extra costs in the form of “convenience fees.”
What convenience fees are
Convenience fees are charges levied for the privilege of paying for a product or service using an alternative payment, or a payment method that is not standard for the merchant. Movie theaters, for example, typically sell tickets face-to-face at the box office. However, if a movie theater gives customers the alternative option of paying by phone using a credit card, then that theater could charge a convenience fee. So technically, you’re not paying for using your credit card, but for the privilege of using the pay-by-phone option.
Card network policies vary
When it comes to convenience fees, different card processing networks have different policies:
|CARD NETWORK CONVENIENCE FEE POLICIES|
|According to Visa’s policy, certain criteria must be met in order for a merchant to charge a convenience fee:|
However, tax payments don’t have to meet all of those criteria. “While Visa regulations prohibit merchants from applying surcharges to normal transactions, we do permit our cards to be used for tax payments together with a convenience fee,” a Visa spokesman said. The reasons for this distinction: Income taxes are government mandates, and federal statute prohibits the Internal Revenue Service from paying the costs associated with credit card acceptance, the spokesman added.
|Like Visa, Mastercard outlaws surcharges. However, in 2008, the company created the Mastercard Convenience Fee Program for government agencies and educational institutions that were not accepting card payments at the time.|
“It was an effort for us to make sure that we were providing consumers with that choice in how they wanted to pay,” said Mastercard spokesman Seth Eisen. Since the organizations can charge convenience fees, the cost of accepting credit cards is less prohibitive. However, they still must offer an alternative payment channel. Mastercard leaves the fee structure — whether it’s fixed, tiered or a percentage — up to the organizations in the program.
|“Select transactions do qualify for convenience fees, including taxes and tuition,” says Molly Faust, a spokeswoman for American Express. “However, a merchant must provide an actual convenience in the form of payment, for example, online payment, interactive voice response or a payment kiosk. The fee must also be clearly disclosed before the transaction is completed.”|
|While Discover doesn’t have an official convenience fee policy, it requires that all credit cards be treated the same, said Katie Allmaras, a spokeswoman for Discover. As a result, the rules instituted by the other card issuers would apply to Discover since a merchant cannot levy a fee on a Discover cardholder that it isn’t allowed to impose on a Mastercard, Visa or American Express cardholder.|
A convenience fee is not a surcharge
Convenience fees are not surcharges, which are costs added simply for the privilege of using a credit card.
All credit card issuers frown upon surcharges (though most have no problem with offering a discount for using cash).
“We believe that surcharging credit card purchases is harmful to consumers,” said Faust. “It is not a customer-friendly practice for a merchant to first attract a customer to its store or website to shop, and then to penalize the customer for using a charge or credit card that the merchant accepts.” Surcharges are also illegal in 10 states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, plus the U.S. territory of Puerto Rico.
However, that list of surcharge-free states may decrease, following a Supreme Court ruling on March 29, 2017, that New York’s anti-surcharge law impacts merchants’ free speech.
Convenience fees spur consumer complaints
Not surprisingly, many consumers are unhappy with convenience fees and believe merchants should eat the costs. “Paying by credit card is not a convenience for the customer,” says Bob Johnson, a photographer and video producer in New York City. “It’s a convenience for the company because the more ways that the company will accept payment the easier it is for them to make more profits.”
In one famous example, Verizon felt the wrath of its customers when it announced in December 2011 that it would charge customers a $2 convenience fee if customers paid with credit or debit cards through the company’s website or via telephone. The company quickly reversed its decision after a flood of complaints.
The only thing consumers can do to avoid legitimate convenience fees is to pay using the standard payment channel or stop patronizing merchants who charge the fees. However, consumers should always be on the lookout for surcharges by checking receipts and paying attention in the checkout line.
If you’ve been issued a surcharge, contact your card issuer and give them the name and location of the merchant.
If you live in one of the states where surcharges are illegal, complain to the Consumer Financial Protection Bureau, says Dan Rosenfeld, a spokesman for the Massachusetts Office of Consumer Affairs and Business Regulation.
“We do not believe that consumers should have to pay a fee just to use their debit or credit card,” the Visa spokesman said. “It is unfair and wrong.”
See related: What are my rights regarding credit card surcharges?, Taking credit card fees out of employees’ tips, How to avoid paying convenience fees on utility bills, Can a private preschool charge card convenience fees?