Credit card convenience fees

Posted on April 11, 2012 by Max

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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.

Convenience fees it`s credit card processing companies ordinarily forbid charging a surcharge for accepting cards, but, under limited circumstances, they do permit a convenience fee. The rules vary by company, but in general, a convenience fee is allowed when payment by credit card is an alternative form of payment not ordinarily accepted by a merchant or service provider. For example, when you pay your income taxes on-line by credit card, expect a convenience fee of 2 percent to 4 percent of your tax payment.

Perhaps the key to understanding what convenience fees are is to understand what they are not. Convenience fees are not surcharges, which are costs added simply for the privilege of using a credit card. For example, if a pound of coffee costs $10, but a merchant charges you $12 if you pay with a credit card, the merchant has levied a $2 surcharge.

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,” says Molly Faust, a spokeswoman for American Express. “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.

Convenience fees, on the other hand, are charges levied for the privilege of paying for a product or service using an alternative payment channel, or a payment method that is not standard for the merchant. Movie theaters, for example, typically sell tickets face to face in 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” for the privilege. So technically, you’re not paying for the privilege of using your credit card, but for the privilege of using the pay-by-phone option.

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