Surcharges, Convenience fees, General Fees, and Platform Fees
Important Disclaimer
The information in this blog post, including insights, analysis, opinions, and recommendations, is for informational purposes only and does not constitute legal advice. The legal landscape surrounding fees can be dynamic, and while we strive for accuracy, Formli does not guarantee the current validity of this information and does not undertake to update it as laws change. Users should consult with legal counsel regarding the legality and applicability of any fees discussed. By utilizing Formli's software or this information, users agree to conduct their own research on the legality of fees in their jurisdiction and to indemnify Formli against claims related to their decision to impose fees on customers. Statements regarding the legality of fees, including in MA, are not definitive; consult legal professionals for specific guidance.
Overview
Laws
Fees are governed by primarily by state and federal laws. Fees that are applied to credit card transactions are also governed by the specific regulations of the given credit card issuer.
Credit card issuers, such as Visa, Mastercard, American Express, each have specific regulations that determine:
- What is considered a credit card surcharge.
- How much of a credit card surcharge can applied.
- How surcharges are presented to the customer.
- What type of fees outside of credit card surcharges, such as convenience fees, can be applied to transactions.
In many cases, the regulations set forth by the card issuers can be more restrictive than the regulations set forth by state and federal law. It’s important to follow the regulations of the card issuers. According to the Visa Surcharge Q & A as of April 15th, 2023, Visa may assess an immediate fine of $1,000 on any merchant not adhering to the Visa guidelines for credit card surcharges.
Fees
Let’s start with fees. Fees are common in many industries such as travel, purchasing event tickets, and purchasing a car. A fee is a extra line item applied to a transaction that was not included in the original marketed price of the product. A few notes about general fees:
- A general fee is applied to every transaction uniformly.
- A general fee may be a fixed price or a percentage of the transaction.
- A general fee may or may not be included in the market price.
Let’s be clear about the classifications of these fees according to state and federal regulations as well as credit card companies:
- Credit Card Surcharge - is a fee that is levied for any purchase with a credit card.
- Convenience Fee - is a fee that is charged on non-standard payment channels for ease of payment.
- Service Fee - is a special type of convenience fee available to select organizations, such as government and education entities, that allows percentage fees to be applied on a transaction
- Platform Fee - is a general fee associated with each transaction or use of a software platform. These fees may be chargeable to the customer of the software platform or to the customer of the customer.
Fees are regulated per state by industry. Recently “junk fees” have come under fire by the Biden administration. A recent Whitehouse publication details the steps that the administration is taking in cracking down on fees that are not presented up front to the user. General Fees are not highly regulated by credit card issuers.
Credit Card Surcharges
Next let’s take a look at the subset of fees called credit card surcharge fees.
A credit card surcharge is defined as an amount that is charged when the buyer chooses to pay with credit card versus another payment method.
Credit card fees are regulated by state and federal law. There are currently 10 states that have some type of regulation regarding credit card surcharge fees. There are 2 states (Massachusetts and Connecticut) that have outright prohibited credit card surcharge fees. It is important to understand the credit card fees in the state of your customers so that you can be in compliance with local laws.
Credit card surcharge fees are also regulated by credit card issuers as well. A 2013 Supreme Court decision requires that credit card issuers allow merchants to apply credit card surcharge fees to transactions; however credit card issuers are still able to enforce strict requirements about how these fees are applied, specifically:
- The surcharge amount may not be more than the actual cost of the transaction (cost calculation varies based on card issuer)
- Customers must be notified of the fee before the transaction is completed.
- Surcharges cannot be applied to debit and prepaid cards.
- Merchants must provide advanced notice in writing 30 days prior to applying surcharge.
- Credit card surcharges must be uniform across card types or brands.
Generally, the card issuer with the most stringent requirements will set the requirements for all cards. For example, Visa’s regulations for credit card surcharges and convenience fees generally make the regulations for the other card issuers irrelevant.
One note is that credit card surcharge fees cannot be applied to purchases being made with debit or prepaid cards. This is a restriction set by Durbin Amendment of the Dodd Frank Act that limits the max interchange rates of a transaction. The restriction to not charge credit card surcharge fees to debit and prepaid cards is also specified by all major credit card providers.
Convenience Fees
Convenience fees are a subset of fee that allows a merchant to charge an extra amount for a non-standard payment channels that provides a “bona fide” convenience to the customer.
For example, a movie theater may charge a flat convenience fee per ticket when purchasing a tickets online since the standard method of purchase is at the ticket counter of the theater.
Convenience fees are highly regulated by credit card issuer guidelines and regulations. While each credit card issue has their own regulations, Visa’s regulations are the strictest regulation to meet.
According to Visa, a convenience fee must meet the following criteria:
- Charged for a non standard, “bona fide” more convenient payment channel
- Must be a flat fee and not a percentage
- Must be charged uniformly across all payment methods in a payment channel
- Cannot be used on recurring transactions
- The fee cannot exceed 3%
- The fee can only be charged by the provider of the goods or services
- The fee cannot be charged in person
Service Fees
Services fees are a sub category of convenience fees that allow select merchants codes to bypass the more restrictive parts of the convenience fee guidelines. Visa and Mastercard require these merchants to register and be part of program to have access to charge this type of fee. Service fees are typically reserved for government and education entities that do not make a profit from the transaction they are collecting.
Service fees differ from convenience fees in the following ways:
- Ability to charge a fee on a primary channel of payment
- Ability to charge a fee on in person transactions
- Ability to charge a percentage fee
- Ability to charge a fee on debit cards
- Ability to charge a fee on recurring transactions
- Ability to vary the fee based on payment method (card, ACH, etc.)
- Ability to vary the fee based on payment channel (in person, online, over the phone)
There are several restrictions placed on Service fees, specifically by Visa:
- The Service fee must processed in a separate transaction than the original purchase.
- The Service fee must be listed on the receipt.
- The Service fee may not exceed actual fee costs (calculation varying by card issuer).
For example, if you want to pay your college tuition using a credit card, then the university can charge you 3% fee for paying with your card. Additionally, the university may also offer you a 1% fee capped at $5 for paying via ACH online.
State Laws
Of the fees discussed here, credit card surcharge fees have the largest legal hurdle to overcome. The laws and regulations vary from state to state. While 10 states have laws regulating credit card surcharge fees, some of these states are not enforcing these laws as they are currently being challenged by court cases.
The two states that you have to worry about are Massachusetts and Connecticut.
Massachusetts
According to Section 28A, no seller is allowed to attach a fee to a transaction if a buyer chooses to use a credit card in lieu of cash.
This law was recently challenged by Opinion 19-010, in which the Division of Banks advised a local card dealership that a “convenience fee” could be applied to payments collected by a third party if a the transaction met the following criteria:
The consumer has the choice as to whether to pay by credit card through the third-party service provider;
- Any additional costs, including the convenience fee, that are associated with processing the credit card payment by the third-party service provider are paid to the third-party service provider;
- The third-party servicer provider is an independent company;
- Neither the merchant nor any of its employees may receive any direct or indirect compensation or consideration – in any form – from the third-party service provider or any other party; and
Additionally, Opinion 19-010 was confirmed by Opinion 21-005. In Opinion 21-005, the following criteria are defined as
- The licensee utilizes a third-party payment processor for the processing of the payment;
- The consumer has the choice as to whether to make the payment through the third-party service provider and must be able to avoid the convenience fee or processing fee by making the payment to the licensee by another method;
- Any additional costs, including the processing fee or convenience fee, that are associated with processing the payment by the third-party service provider are paid to or passed through to the third-party service provider;
- The third-party servicer provider is a completely independent company with no other relationship to the licensee;
- Neither the licensee nor any of its employees or affiliates may receive any direct or indirect compensation or consideration – in any form – from the third-party service provider or any other party;
- The amount of any fee would need to be clearly disclosed to the consumer prior to the consumer’s selection of the payment method and before any such fee is charged. For consumers making a payment by telephone, the licensee must ensure that the fee is disclosed verbally over the phone prior to the consumer being charged. Likewise, for consumers making payments via a website, the fee must be clearly disclosed to the consumer electronically as part of the payment process.
Connecticut
According to Connecticut General Statutes § 42-133ff, it is illegal for an additional fee be levied on a transaction that is paid via “bank credit card”. Additionally, it is required that the sale price listed be the amount including the credit card surcharge.
How Formli Works
Formli makes it easy to collect compliant credit card surcharge fees and convenience fees on your online payments. Here are a few strategies to help you stay compliant:
Disable Fees for Debit and Prepaid Cards
Formli allows you to set the fees based on the card type. To stay compliant, you can disable the fees when the card type is `debit`, `prepaid`, and `unknown`.
Remove Card Payments in specific states
Formli allows you to selectively enable and disable payment methods based on the state of payment. For example, if a purchaser indicates they are from the state of Massachusetts, credit card payments can be disabled and users can pay via ACH.
Use Formli as 3rd Party Payment Processor (Massachusetts)
Formli can act as your 3rd party payment processor. By allowing Formli to process the payment on your behalf, Formli is able to charge a credit card surcharge fee as a convenience fee for making a payment through our platform. Since the payment is processed by a 3rd party provider and the fee goes directly to the provider, the convenience fee is legal in the state of Massachusetts as long as Formli is not acting as your primary channel for payment.
Platform Fee
A platform fee is a cost imposed by a company to cover the expenses associated with providing a particular service or platform. This fee typically helps to finance the ongoing operation, maintenance, and development of the platform, customer support, and other value-adding services.
To avoid confusion and potential regulatory issues, it's essential to clearly communicate the nature of the platform fee to users. Clearly state in your terms and conditions, as well as any point of payment, that the platform fee is for accessing and using the platform's services and is not linked to any specific payment method.
However, they still need to comply with general business practices and regulations. They must be fair, non-discriminatory, and adequately disclosed to users.
Concerning consistency across all payment methods, it is a best practice to keep the platform fee consistent regardless of the chosen payment method. This reinforces the idea that the fee is related to the use of the platform, not tied to any specific payment option. However, businesses may choose different strategies based on their business model, the value provided, and the cost associated with various payment methods.
Formli Options
Formli enables its users to do surcharge, convenience fees attached to a standard account. Formli also enables customers to use the platform fee subscription option, in lieu of payment fees and with a reduced software fee, and to pass that onto its customers. Pricing for these can be seen at formli.com/pricing.
Ultimately users are responsible for ensuring their account is compliant.
Formli Platform Fee
Formli levies a platform fee to cover the costs associated with maintaining and improving our online payment facilitation services. This fee applies uniformly to all users, regardless of their chosen payment method.
We make sure to communicate clearly and prominently about this fee, both in our user agreements and at all payment points on our platform. By doing this, we ensure our users understand that the platform fee is for the use of Formli's services and is separate from any surcharges or convenience fees related to specific payment methods.
As of now, there are no specific regulations governing platform fees. However, we adhere to the principle of fairness in all our fee structures. Our platform fee is justified by the value and convenience provided by our services, and we strive to make it as affordable and non-discriminatory as possible. We also offer a variety of pricing plans to suit different user needs and budgets.
We aim to ensure transparency, affordability, and value for money with our platform fee, helping our users navigate the often complex world of online payments with ease and confidence.
Disclaimer for Formli's Blog Post on Platform Fees, Surcharge Fees, Convenience Fees, etc.
This blog post has been provided for informational purposes only and is based on Formli's current understanding of the subject matter at the time of publication. While we aim to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, regarding the completeness, accuracy, reliability, suitability, or availability of the content herein.
The information provided in this post should not be construed as legal advice, nor should it be solely relied upon when making business or financial decisions. We strongly recommend consulting with a qualified attorney or legal professional before making any decisions based on the content of this post. By accessing, reading, and/or acting upon any information contained within this post, you acknowledge and agree that you are doing so of your own accord and that you alone bear the full responsibility for any consequences or liabilities that may arise, including any related to the use of Formli's platform.
Formli disclaims any liability for any damages or losses, direct or indirect, that may result from reliance on or use of the information provided in this blog post. All readers and users are urged to use discretion and seek independent professional guidance where appropriate.
