Convenience Fee: Definition, Examples, and How To Avoid Them

What Is a Convenience Fee?

A convenience fee is a fee charged by a seller when a consumer pays with an electronic payment card rather than by a standard form of payment accepted by the business. Standard payments include cash, check, or an Automated Clearing House (ACH) transfer. Convenience fees can be a fixed dollar amount or a percentage of the transaction amount, usually 2% to 3%, and must be disclosed to the consumer in advance. Types of payments where the payee typically charges a convenience fee include mortgage payments, property tax payments, college tuition, and taxes.

Key Takeaways

  • A convenience fee is a fee charged by a business for payments made through an alternative channel, rather than by cash, check, or ACH.
  • Typical cases where convenience fees are charged include payments for taxes and tuition.
  • The fee is typically a fixed amount or a percentage of the sale.
  • Convenience fees are charged by businesses to cover the cost they pay to payment processing companies for when a customer pays by credit card.
  • A convenience fee is different from a surcharge, which is a charge simply for just using a credit card. Surcharges are illegal in some states.
  • All businesses have to follow the policies of payment processing providers and government laws when it comes to convenience fees and surcharges.

Understanding a Convenience Fee

Convenience fees can help a business cover some of the costs imposed through electronic payment processing. Businesses have to pay a merchant fee every time one of their customers uses a credit card. For most businesses, such as department stores and grocery stores, a merchant fee is just a cost of doing business. On the other hand, a movie theatre or concert venue typically takes payment at the box office, so an alternative payment channel, such as the phone or online via credit card, would result in additional fees for them, thus they would charge a convenience fee for doing business in this way.

It's important to note that a convenience fee is different than a surcharge. A surcharge is the ability to charge extra just for the benefit of using a credit card while a convenience fee is for a specific use, such as taxes or tuition, or payment through alternative channels, such as by phone or online.

Example of a Convenience Fee

Suppose that you wanted to pay the Internal Revenue Service (IRS) by credit card. The IRS will accept credit card payments through several different payment processing companies, and they all charge convenience fees, as allowed by the credit card companies. One might charge 2.49% with a $3.95 minimum, while another might charge 3.93% with a $2.00 minimum. Thus, if you need to send the IRS $2,000 and you wanted to pay by credit card, you could be required to pay a maximum convenience fee of 0.0393 × $2,000 = $78.60.

Convenience Fee Regulations

Some people might not mind paying a convenience fee for the benefit of using an electronic payment card, particularly if the benefit of earning rewards on the card outweighs the cost of the convenience fee. However, this practice is regulated by both state legislation and card networks. As a regulated act, businesses must be cautious in instituting convenience fees and surcharges for customers.

Surcharges have been outlawed in 10 states, which are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas, plus the district of Puerto Rico. These bans have come into question as some courts argue that they limit a business's freedom of speech. States where surcharges are legally allow merchants the ability to set their own surcharge levels with caps usually at approximately 4%.

Credit Card Company Policies on Convenience Fees

Every credit card provider has different rules on convenience fees. Some are more thorough than others. Below are the rules of some of the major credit card providers:

Mastercard: Allows for convenience fees as long as they used for all transactions and methods of payment.

Visa: Allows for convenience fees only if the payment is through an alternative channel, such a by phone or online, and the business first notifies the consumer, and that the fee is a flat rate, not a percentage of the sale.

American Express: American Express's policy does not include convenience fees nor surcharges.

Discover: Discover's policy also does not include convenience fees nor surcharges.

How to Avoid Convenience Fees

There are really only two options when it comes to convenience fees; either to pay the fee or to use another form of payment, such as cash. In many cases, some businesses, such as gas stations, offer discounts when a consumer pays by cash. It's always worth asking a business if they offer a cash discount. Convenience fees are meant to be disclosed at the point of sale, so if you discover you have been charged a fee after the fact, it's important to take this up with your credit card company.

Article Sources
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  1. PaymentCloud. "Ultimate 2021 Guide: Credit Card Processing Fees Explained." Accessed Sept. 30, 2021.

  2. GSA SmartPay. "Surcharges." Accessed Sept. 30, 2021.

  3. Internal Revenue Service. "Pay by Debit or Credit Card When You E-file." Accessed Sept. 30, 2021.

  4. National Conference of State Legislatures. "Credit or Debit Card Surcharges Statutes." Accessed Sept. 30, 2021.

  5. Mastercard. "U.S. Merchant Class Settlement Mastercard Frequently Asked Questions Merchant Surcharge," Page 2. Accessed Sept. 30, 2021.

  6. Mastercard. "Mastercard Rules - 11 December 2020," Page 124. Accessed Sept. 30, 2021.

  7. Visa. "Visa Rules and Policy," Select "Can I Charge a Convenience Fee for Accepting Visa?" Accessed Sept. 30, 2021.

  8. American Express. "Cardmember Agreement: Part 1 of 2," Page 1. Accessed Sept. 30, 2021.

  9. Discover Card. "Pricing Schedule," Page 1. Accessed Sept. 30, 2021.

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