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Can you legally charge customers credit card fees or processing fees?

Credit card fees and processing fees are very nuanced, and you might be charging in a way that lands you in hot water – know what to do, and how.

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Credit card fees or processing fees: what CAN you charge?

Small business owners and entrepreneurs often do things illegally without knowing. And with constantly changing laws, it can be hard to keep up. A common practice is for businesses to pass along the fees incurred from their credit card processing, and slap a fancy name on it, but this is actually highly regulated and nuanced, so if you take money from people, you should know how to do it without getting yourself or your company in trouble.

CardFellow.com has carefully laid out the rules, but first an update: As of January 2013, Merchants are permitted to charge customers a surcharge for paying with a credit card, but ten states still prohibit surcharging, and surcharges are still not allowed on signature and pin debit transactions (read more on this).

Regarding what CardFellow alls the “maze of rules, exceptions and even state laws,” there are proper ways “to navigate to ensure you stay compliant with the terms of your merchant processing agreement.”

They note that the act of charging customers a fee to pay with their credit card is commonly referred to as checkout fees, convenience fees, or surcharging and each of the four major card brands has a slightly different policy concerning the topic. Below, in their own words (originally appearing on the CardFellow blog), they outline the general guidelines regarding convenience fees first, then what it all means, and ultimately if and how your business can pass processing fees to your customers.

The rules regarding Visa

As I’ll cover a little later, there are a few exceptions to Visa’s convenience fee guidelines, but the bulk of their policy is outlined on page 477 of their April 2011 Visa International Operating Regulations. Visa’s current published policy is as follows:

In the U.S. Region, except as specified otherwise for Tax Payment Transactions in “Tax Payment Program Fee Requirements – U.S. Region,” a Merchant that charges a Convenience Fee must ensure that the fee is:

  • Charged for a bona fide convenience in the form of an alternative payment channel outside the Merchant’s customary payment channels
  • Disclosed to the Cardholder as a charge for the alternative payment channel convenience
  • Added only to a non-face-to-face Transaction. The requirement for an alternate payment channel means that Mail/Telephone Order and Electronic Commerce Merchants whose payment channels are exclusively non-face-to-face may not impose a Convenience Fee.
  • A flat or fixed amount, regardless of the value of the payment due
  • Applicable to all forms of payment accepted in the alternative payment channel
  • Disclosed before the completion of the Transaction and the Cardholder is given the opportunity to cancel
  • Included as a part of the total amount of the Transaction

Convenience Fees Not Assessed by a Third Party – U.S. Region 5.2.E

In the U.S. Region, except as specified in “Tax Payment Program – Interchange Reimbursement Fee Qualifications and Fee Amount – U.S. Region,” a Convenience Fee may only be charged by the Merchant that actually provides goods or services to the Cardholder. A Convenience Fee may not be charged by any third party.

Convenience Fees on Recurring Transactions – U.S. Region 5.2.E

In the U.S. Region, except as permitted in “Tax Payment Program – Interchange Reimbursement Fee Qualifications and Fee Amount – U.S. Region,” a Convenience Fee must not be added to a Recurring Transaction.

The rules regarding MasterCard

I’ll cover MasterCard’s special regulations pertaining to convenience fees charged by educational and municipal merchants in a little bit. For now, the following is MasterCard’s convenience fee guidelines that pertain to most business taken from page 5-19 of their MasterCard Rules document.

A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction. A Merchant may provide a discount to its customers for cash payments. A Merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used, or as the Corporation has expressly permitted in writing. For purposes of this Rule:

  1. A surcharge is any fee charged in connection with a Transaction that is not charged if another payment method is used.
  2. The Merchant discount fee is any fee a Merchant pays to an Acquirer so that the Acquirer will acquire the Transactions of the Merchant.

The rules regarding Discover

Discover rules regarding what they refer to as surcharging are less strict than Visa and MasterCard’s, but like Visa and MasterCard, Discover forbids convenience from being imposed on their cards if the same fees aren’t also applied to all other brands. Discover’s rules regarding surcharging can be found on page six of their Merchant Operating Regulations.

I’ve provided this document below because Discover does not publically post it on their Web site. The latest copy at the time of this writing is April 2011, going forward you will want to check with Discover to verify the latest information.

Discover rules for surcharging are as follows:

Section 2.5, Surcharges and Discounts
New terms permit you to offer discounts at the point-of-sale, as provided in the Dodd-Frank Act. You may offer differential discounts depending on the method of payment (e.g., credit, debit, cash or check), but such discounts may not differentiate based on issuer or payment network. If you operate in Canada, see Section 5.12 to identify differences that apply to discounts offered in Canada.

Equal Treatment of Cards with Other Payment Cards; Equal Treatment of Card Issuers Other than with respect to discounts as permitted in Section 2.5, you may not institute or adopt any practice, including any discount or in-kind incentive, that unfavorably discriminates against or provides unequal and unfavorable treatment of any Person who elects to pay using a Card versus any other credit card, debit card, prepaid card, or other payment card that you accept (except for any proprietary payment card issued by you or any payment card issued under a formal co-branding relationship between you and a card issuer), and you may not in any way discriminate among various Issuers of Cards, except to the extent such restrictions are prohibited by Requirements of Law or permitted as set forth in Section 5.12.

Surcharges and Discounts
You may assess a surcharge on a Card Sale provided that (a) the amount of the surcharge may not exceed the Merchant Fee payable by you to us for the Card Sale and (b) you assess surcharges on Card Sales conducted using other cards accepted by you, in each case subject to the restrictions in Section 2.4; and (c) you otherwise comply with Section 2.4. You may not assess a surcharge or other penalty fee of any kind other than as set forth above. Effective upon publication of Release 11.1 of these Operating Regulations, you may offer discounts or in-kind incentives for payment by different tender types (e.g., a discount for payment by cash versus payment by credit card) subject to the restrictions in Section 2.4.

The rules regarding American Express

American express has pretty vague restrictions on convenience fees, and they more or less defer to the guidelines set forth by the other three major card brands. American Express outlines their convenience fee guidelines in section 3.2 of theAmerican Express Merchant Regulations.

Like Discover, American Express doesn’t post the Merchant Regulations on their Web site. So, I’ve included it here so you can take a look [current as of 2011]. However, going forward you should check with American Express for the most recent version of their regulations.

American Express has the following stance on convenience fees:

Except as expressly permitted by applicable law, you must not:

  • indicate or imply that you prefer, directly or indirectly, any Other Payment Products over our Card,
  • try to dissuade Cardmembers from using the Card,
  • criticize or mischaracterize the Card or any of our services or programs,
  • try to persuade or prompt Cardmembers to use any Other Payment Products or any other method of payment (e.g., payment by check),
  • impose any restrictions, conditions, disadvantages or fees when the Card is accepted that are not imposed equally on all Other Payment Products, except for ACH funds transfer, cash, and checks,
  • engage in activities that harm our business or the American Express Brand (or both), or
  • promote any Other Payment Products (except your own private label card that you issue for use solely at your Establishments) more actively than you promote our Card.

Exceptions and special programs

Visa Tax Payment Program
Visa has a Tax Payment Program with special guidelines for convenience fees for entities that accept tax payments such as municipalities or Federal agencies.

Currently, the Tax Payment Program allows a flat convenience fee of no more than $3.95 to be charged for tax payments made with a debit card, and a variable fee (percentage of the transaction) is permitted for tax payments made with a credit card.

I’ve included Visa’s Tax Payment Program Guide because it’s not readily accessible online. However, you should always check with Visa or your credit card processing services provider for the latest information regarding the Tax Payment Program prior to making any convenience fee policies for your business.

Businesses or entities that would like to charge a convenience fee to accept tax payments must be identified with merchant category code 9311, and they must be registered with Visa. Once registered, they must abide by the terms set forth in the Tax Payment Program Guide.

MasterCard Convenience Fee Program
MasterCard allows pre-certified municipal and educational entities to charge convenience fees in certain circumstances. MasterCard’s main stipulation regarding convenience fees charged by educational and municipal institutions is that any fee must be applied equally to all card brands.

This is the reason that many colleges and universities have stopped accepting Visa branded credit and debit cards. MasterCard requires any fee on their cards to be applied equally to all card brands, and Visa forbids convenience fee on anything except tax payments. So, colleges and universities can’t accept Visa if they want to charge a fee for MasterCard, Discover and American Express.

Since it’s not readily available online, I’ve included The MasterCard Convenience Fee Program guide below. At the time of this writing the guide is current, but be sure to check with MasterCard for or your merchant service provider for the latest information on this program before making any decisions about convenience fees within your organization or business.

How can your business charge customers a credit card fee?

Now that we’ve covered the convenience guidelines for each of the major card brands, let’s look at how your business or organization can charge customers a credit card fee.

Offer a discount instead of surcharging
The major loophole that makes it possible for all business to indirectly charge customers to use a credit card is by offering a discount for cash or check purchases. The devil is in the details of how prices are portrayed to customers.

For example, a retail store would raise the price on everything in the store by 3%, and then place a sign at the register that says, “Get a 3% discount by paying with cash or check.” This roundabout method allows any business to pass processing costs to customers while still staying within the bounds of the terms set by the card brands.

In fact, Visa even mentions this method on their Web site by saying, “Retailers can encourage their customers to use other forms of payment, such as cash and checks, and can discount for PIN debit and cash and checks provided that the offer is made to all respective buyers.” Check it out for yourself here.

MasterCard also mentions discount in their convenience fee guidelines by saying, “A Merchant may provide a discount to its customers for cash payments.”

Thanks in large part to the recent Durbin Amendment, discounting versus surcharging is also acceptable within states that have specific laws banning surcharges on credit or debit transactions. I’ll go over individual state laws regarding surcharging in just a bit.

The downside to discount versus surcharging is that it may make your prices appear higher than your competitors, and you risk isolating or angering customers that prefer to pay with credit or debit.

Raise prices across the board
Many people feel that offering a discount for cash or check payments is a pain, and that it does more harm than good to marketing and customer relations. If you’re of this mindset, the obvious option is to pass the cost of processing to your customers by raising prices across the board.

You won’t have to raise prices by as much as if you were offering a discount for cash because the increase is across all payment channels. A solid 1.5% to 2% price hike will do the trick to soften the blow of processing fees assuming your business has competitive credit card processing fees. An easy way to see if your rates are competitive is to get free instant credit card processing quotes at CardFellow.

Convenience fees on a case by case basis
There are a lot of “what ifs” when it comes to convenience fees, and many people want to know whether the practice is acceptable for their business. If I tried, I’d be answering questions until I was blue in the face. So instead, I’ve outlined the card brands’ guidelines below as they apply to most businesses.

Note: Connecticut forbids surcharges on all forms of payments.

If your business accepts Visa:
Visa forbids virtually all convenience fees, and other card brands say you can’t impose a convenience fee on their cards unless you impose the same fee on all other cards. So, by accepting Visa, you largely negate your ability to charge convenience fees at all.

  • You cannot charge a convenience fee under any circumstances if your primary method of acceptance is card-not-present, such as online or mail-order.
    • The only exception to this rule is if your company or organization is classified as MCC 9311, it accepts tax payments, and it’s registered with Visa’s Tax Payment Program.
  • You can charge a convenience fee if your primary method of acceptance is card-present (swiping cards), and you would like to offer customers who are unable to come to your place of business the convenience of paying with their credit card either online or over the phone. In such a case you must:
    • The fee must be for a bona-fide convenience. Meaning, it must be charged from something that’s outside your normal payment channel and sales process.
    • Disclose the convenience to the customer prior to completing the transaction so they have the opportunity to cancel the transaction.
    • Charge only a flat fee regardless of the transaction amount. The fee cannot be a percentage of the transaction.
    • Charge the same convenience fee for all card brands and payment types. For example, you would have to charge customers paying with cash the same convenience fee that you charge those paying with a credit or debit cards.
    • The convenience fee must be included as part of the total transaction amount.

If your business only accepts Discover, MasterCard, and American Express:

  • You can charge a convenience fee on both card-present and card-not-present credit and debit transactions so long as:
    • The fee is only charged for a bona-fide convenience outside of the typical payment channels and sales process.
    • The fee is applied to all payment channels, including cash.
    • Your fee is capped based on the discount fee you pay on Discover branded transactions. Discover forbids the amount of any convenience fees from exceeding the discount that you pay on the transaction. So, while you can charge a fee, you have to limit the fee across all brands based on the discount fee you pay Discover.

If your business only accepts MasterCard and American Express:

  • You can charge a convenience fee on both card-present and card-not-present credit and debit transactions so long as:
    • The fee is only charged for a bona-fide convenience outside of the typical payment channels and sales process.
    • The fee is applied to all payment channels, including cash.

Surcharge regulations by state

Ten states currently have laws pertaining to surcharges and discounting certain payment methods, such as cash. Visa has a good list of these states and their individual laws here, so there’s no reason to outline them in this article as well.

Now, go forth the right way

CardFellow has above outlined the intricacies regarding fees, so go forth and charge (or don’t) accordingly!

#CreditCardFees

The American Genius is news, insights, tools, and inspiration for business owners and professionals. AG condenses information on technology, business, social media, startups, economics and more, so you don’t have to.

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1 Comment

1 Comment

  1. Alex Truedman

    June 25, 2015 at 8:39 am

    If you are dealing with a credit card you will always have to pay, either it’s a Master Card or Visa, reward card or bonus card, low rate card or the plan with charges, it’s a credit and any credit costs money. Why not start saving and using what you actually have, than trying to get more than you can afford? It’s true, the system is built on credits, but is it fair for simple purchasing (I’m not talking about buying a house, of course). There’re instruments which support financially when it’s actually needed (personal loans, for example, you can find out more about urgent loans on onlinepaydaycalifornia.com). Will it be of any use to promote more consuming offering more credit card plan? Not for a long-term perspective.

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Rize is the tech nerd’s version of hiding money in coffee cans

(TECH NEWS) Rize savings tool helps users stash away money without having to bury it in the yard.

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Finding the self-motivation to save money is hard. Manually going into your bank account to pull money into savings is a drag.

And it means you have to look at all those transactions where you spent too much money on donuts or shoes when you should have been saving.

Let something else do it for you instead. Rize is a savings service that helps you automatically save and manage your money. After creating an account, you simply set your monthly goal and Rize does the rest.

Your chosen amount is automatically moved from checking to your Rize account after each paycheck.

At any point you can change, delete, add, or transfer savings between goals as many times as you want. You can create multiple goals with differing amounts.

No savings account is necessary to use the app. Money is held in your account until you choose to withdraw it. There’s also no limit or extra fees for withdrawals.

You don’t need to worry about overdrafting, either.

Rize double checks your checking account to ensure sufficient funds, and notifies you before making any withdrawals.

Nope. This app is legit. Their team features investors, advisors, and leaders with solid financial backgrounds. It’s a free, pay what you want model. If you’re able to throw some bucks to the developers, go for it. If not, (after all, you are saving up for that cool vacation or whatever) Rize is still totally free.

Bonus: you earn 0.9% APY, which is 15 times more than the national average.

Plus, your savings are SIPC insured up to $250,000, and Rize is an SEC-registered company. Your information is anonymous and encrypted with 256-bit encryption.

Rize works with over 2,500 banks and credit unions around the country. It’s currently only available for U.S.-based checking accounts, but they plan offering international features in the future. A mobile app is also in the works. For now, Rize is accessible on any mobile or tablet browser.

Did I mention it’s free? No excuses. You can start with just $5. Get signed up for Rize now. Start saving today for your business and personal financial goals.

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You got an LLC and you’re ready to hire – 3 things lenders look for

(FINANCE NEWS) Yes, securing a small business loan of any kind is tedious and depends on varying lending organizations and business needs, but there is a list of general requirements small businesses should be aware of before getting knee-deep in conflicting information about lenders.

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If you are reading this, you probably have an LLC for your small business already, or money talk gets you going. If it is the former, let me say CONGRATULATIONS, and insist you pat yourself on the back in honor of your small business’s progression. Your arrival at a point where expansion is necessary is no small feat given half of small businesses fail in the first year. So, kudos to you.

Now, back to the money talk…

For LLC businesses looking to expand, please don’t fret about all of the information you’ve seen on the web. Yes, securing a small business loan of any kind is tedious and depends on varying lending organizations and business needs, but there is a list of general requirements small businesses should be aware of before getting knee-deep in conflicting information.

After some extensive research posing as the owner of imaginary businesses and annoying every loan officer who’d take my call, I’ve found three general lending requirements. I also provide a collection of the tangible information banks will likely review to meet those requirements. Take a gander:

Assets
Small businesses must have necessary assets: steady cash flow, financial reserves, personal collateral to support a variety of business fluctuations (i.e. unexpected employee loss), and a realistic pay off plan. These assets and financial safety nets are necessary for any lending organization to be confident in your business’s ability to support employee expansion in lieu of current expenses.

Proof of past
Just as you will come to expect from your soon to be employees, lenders want proof of the past and how you’ve managed past loans to align with your business goals. Historical evidence will further determine if your expansion is feasible, but also if it is worthy for the company to accept the lending risk.

Specific plans
Finally, be prepared to provide your small business’s explicit expansion plan, including how you arrived at your suggested loan amount and how you intend to divvy out the funds. It is important that you are as specific as possible in your projected numbers, seeing as one employee could make a $60,000 difference, and largely affect your expansion plan and financial need.

Before you go…

Now that you’re equipped with the magic three, you’re probably feeling empowered to walk into your nearest bank and demand your small business loan. Let’s first be sure you have all of the necessary information on-hand and ready to produce.

Lending companies that look for the magic three before investing arrive at their conclusion after collecting data from the following pertinent information:

– Proof of collateral
– Business plan and expansion plan
– Financial details
– Current and past loan info
– Debts incurred
– Bank statements
– Tax ID
– Contact info
– Accounts receivable information
– Aging
– Sales and payment history
– Accounts payable information
– Credit references
– Financial statements
– Balance sheet
– Profit and loss history
– Copies of past tax returns
– Social Security Numbers
– Assets and liabilities details

Now, my friend, do I release you as proud as a parent unto your nearest bank to secure your small business loan and begin growing your staff the way you’ve dreamed. I’m confident you will find the aforementioned information helpful in said quest, and would like to wish one last time (because it’s impossible to over-congratulate) a sincere CONGRATULATIONS on your businesses growth.

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How cryptocurrency works – basic vocabulary and concepts

(FINANCE) Cryptocurrency is a concept that dates back a decade, but as it becomes newly mainstream, many are struggling to catch up – knowing the basic concepts can get you up to speed.

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One of the most exciting things to arise out of new technology is the idea of better ways to optimize and improve concepts that we already find in the real world. None of us should be surprised when that includes currency.

With cryptocurrencies such as Bitcoin, Ethereum, Ripple, Litecoin, Dash, NEM, Ethereum Classic, Monero, and Zcash (to name a few), it may be hard for the average consumer not to just keep up, but to know what’s going on in this revolution in our modern day economy. Knowing how crypto works makes you a better consumer, as well as investor in your future. Let’s get started with the basics.

What is a cryptocurrency?

To ask what cryptocurrency is, one should also contemplate what modern day paper or coin currency is. At its most basic, all currencies share this core trait: you can exchange a unit (or units) which has predetermined value for either goods or services. Whether it’s dollars, Yen, the gold standard, or Dogecoin, all of these currencies allow you to complete basic transactions.

Where cryptocurrency is different, is how these transactions are completed and how cryptocurrencies are processed.

How does crypto differ from common currencies?

Cryptocurrency allows you to send money directly peer-to-peer (p2p) electronically instead of operating through third-party systems like banks or governments.

The technology that makes this happen is called Blockchain. Blockchain technology is the primary difference between the dollars in your wallet and the virtual currencies in your crypto wallet. The Litecoin School of Crypto uses a great analogy to explain how blockchains work:

“In its simplest form, blockchain is data. It’s a list of recorded information called “blocks” strung together in a chain. Think of blocks as folders stuffed with information i.e. how much Litecoin was sent, who sent it, and who received it. The great thing about blockchains is that it’s public and anyone in the world can see it.”

How does a normal crypto transaction work?

Here’s an example using the fictional cryptocurrency, bitquarters: Karen owes Jamal 10 bitquarters for her movie ticket, so she’s going to pay him back. Karen first requests the transaction through her digital wallet. Because of the nature of cryptocurrency, she can’t send him bitquarters she doesn’t have (there is no “overdrawn” account status in crypto, like modern banks), so it’s a good thing she just got paid!

When Karen initiates the transaction, she uses her private key to virtually “sign” it. When a transaction is completed, an individual will “sign” their transaction with their private key – the reason why cryptocurrency is called as such is because of encryption, after all. The requested transaction is sent via peer-to-peer (p2p) sharing to a network of computers called nodes. These computers validate Karen’s key and verify the transaction.

After the transaction is verified, it is added to the blockchain, the virtual ledger, that all bitquarter users have access to. After that is finished, in only a matter of seconds, Jamal is paid!

What is this cryptocurrency “mining” thing I’ve been hearing so much about?

Mining is a vital part of the cryptocurrency transaction. Miners are the only individuals in the crypto process that can confirm transactions. Their job is to take a transaction, to verify that it is legitimate, and spread them p2p in the network.

To make it a part of the public ledger (the blockchain) every node has to add it to its database. Because mining takes a computer’s energy and electricity to perform, miners are rewarded with small amounts of cryptocurrency per transaction (like how you pay to pull money from an ATM). However, to prevent fraudulent transactions, a computer must solve an encrypted puzzle in order to add it to the blockchain.

What are other important crypto terms I need to know?

Address: the only piece of information that needs to be used for a transaction, similar to a user name or email address. Each transaction uses a different address.

Block: a unit of data in the blockchain that holds and validates transactions. A blockchain is where all blocks of transactions reside.

Double spend: the action of trying to spend cryptocurrency to two different recipients simultaneously. Mining as well as the blockchain prevent malicious actions such as this from taking place.

Cryptocurrency is held up by some as being the currency of the future, while many others think that due to over-speculation, that it will be a investment bubble with irrevocable consequences for brick and mortar institutions. Regardless of any market forecasters perspective on cryptocurrency, the technology is here to stay and knowing the basic vocabulary can help you understand where things are going.

Don’t be intimidated by all of the language around this concept – if you choose to dive into the crypto waters, you’ll learn as you go along. If you invest in stocks, you know a specific concept and vocabulary list, and crypto functions differently but is just another finance mechanism, both of which can be overwhelming but learning the parts necessary to your goals is all that matters.

PS: If you’re more of a visual person, there’s a short video available that has circulated that explains Bitcoing well, and applies to crypto in general.

This story was first published in February 2018.

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