Readers Write: Payment Card Fees Explained

Payment Card Fees Explained
By Heather Randall, PhD

Heather Randall, PhD is chief compliance officer of TrustCommerce, a Sphere company.

The recent comments from HSA Card User and Mr. H on 3/11/24 shine a light on an increasingly common trend on the addition of fees to your invoice, restaurant bill, sporting event, concert, or medical bill. Many businesses are adding new fees in an attempt to cover their operational costs, which continue to increase. These fees can be frustrating for consumers, and if not done in compliance with the Card Brand Operating Rules, can actually expose businesses that are trying to incorporate these fees to fines and penalties.

When discussing card fees, it is important to understand that there are different fees, and card brands maintain different rules for each type of card fee. For example, these three types of fees each have a different purpose.

• Convenience fee. A charge that is added when the business offers the cardholder an alternative payment channel that is, in fact, a convenience. For instance, a healthcare practice may accept payments in office, but may offer patients the ability to pay online. In that case, the ability to pay online is considered a convenience and a fee may be added to that payment channel. Convenience fees may not be charged in a face-to-face transaction or by a business that operates solely online.
• Service fee. A fee that is charged by a merchant or entity in the government or education sector, or a processor that enables payments for such a merchant. The merchant must pass a special identifying value in the transaction message to validate that it is eligible to charge such a fee. Such merchants may include municipal utility providers, tax assessment offices, registrar’s offices, and similar entities.
• Surcharge. A surcharge is a fee that is added to a total invoice amount to cover the entity’s cost of processing the transaction. Surcharges are capped at a certain percentage by the card brands and some states. In addition, there are a handful of states in which surcharges are illegal, and several others in which there are significant regulatory requirements around how a surcharge is to be implemented and communicated. Surcharges cannot be charged on a debit card transaction.

Another important note is that an organization can only charge one of these fees, depending on the card brand. For example, if a patient is paying a medical bill through a portal, the practice can charge either a convenience fee or a surcharge, but not both.

Surcharging in particular is a nuanced process. Maintaining balance between the different card brand approaches to compliant surcharging — and cash discounting, which is also an emerging trend — and state laws is tricky at best. This is particularly true given the recent settlement between Visa/Mastercard and several merchant groups. That settlement included some changes to the ways in which surcharge will be managed by the brands. It remains to be seen what the impact of that settlement will be on the practical realities of imposing such a fee.

The long and the short of it is that merchants can use a number of fees to offset the costs of operations, but they must be used in a way that is compliant with state laws and industry rules. Doing so can be extremely complicated and can court significant consequence if not implemented correctly. Any business investigating leveraging convenience fees, service fees, or surcharges is well advised to speak with their merchant service provider or acquirer before implementation.