Why Did I Get Charged A Credit Card Convenience Fee?

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What is a Credit Card Convenience Fee?

Even if you know all the credit card basics, from credit card debt to building credit and a good credit score, you still may not have heard of a credit card convenience fee.

Credit card convenience fees are commonly confused with credit card surcharges. The difference, however, is that a credit card convenience fee will be applied only in situations where the customer uses a more unconventional form of payment. 

person making a payment using Apple Pay on their smart watch

A common occurence of a credit card convenience fee would be paying with a credit card on a cell phone. So paying with a service such as Apple Pay may present a convenience fee to the customer in order to do so.

Credit card issuers, like Visa Mastercard or Capital One, have different policies regarding credit card convenience fees. Most brands like American Express, however, agree that the charged percentage must remain flat across all people and can only take place if the purchase is being made through an alternate channel.

Requiring that the convenience fee only be charged on purchases made through an alternate channel keeps the business from actually entering into surcharge territory. 

When merchants charge a convenience fee to the customer through a standard payment channel, it would actually be a credit card surcharge. 

Why Do Some Businesses Charge a Credit Card Convenience Fee?

Some businesses decide to charge a credit card convenience fee to offset the cost of accepting that payment method. Some credit card processors will charge their businesses more to accept credit or debit cards. 

However, when a credit card convenience fee is charged, it is because the customer chose to pay through an alternate payment channel. The most common example of an alternate payment method would be mobile payments. 

With technology advancing and mobile payments becoming more and more common, some processors have realized that there is an opportunity to charge businesses an additional fee to accept credit cards through a mobile wallet or another alternate payment method.

So, businesses do not implement an additional fee just to see a little extra income off of their customers. Instead, it is purely done to offset the cost that they have to pay their credit card processor.

Many companies, unaware of a credit card convenience fee or a surcharge altogether, choose to offset the processing cost in a different way.

The Other Common Method

Ever since the implementation of credit card processing fees, businesses have been finding ways to offset the cost that they have to pay their processor. 

Very commonly, businesses have just been raising their prices by the same percentage that they have to pay. 

That way, they can move the fee to the customer, and they can avoid any laws associated with convenience fees and surcharges because there aren’t laws prohibiting companies from raising prices higher than a certain amount.

What State is it Illegal to Charge Extra for Credit Card Purchases?

A credit card convenience fee is legal in 40 states, with California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas being the exceptions to the legality. 

Map showing U.S. states where it is legal to use a convenience fee

Credit card convenience fees have essentially the same legality as a credit card surcharge. They have to follow many of the same guidelines that the other program has to.

If a customer needs to return an item, but was charged a convenience fee on it while buying it, the customer receives compensation for the product and the fee.

The Mastercard convenience fee program, for example, allows businesses to charge a convenience fee if their cards are used for purchases as long as the business continues to follow Mastercard’s guidelines. 

When a credit card network like Mastercard, Discover or Visa allows a business to charge the extra fee, they are helping the business save money.

This program makes it OK to charge extra on each transaction, as long as Mastercard’s convenience fee guidelines are met.

Are Credit Card Convenience Fees Legal?

Being that there are a number of states where it is legal to charge an extra fee for credit card purchases, many businesses within those states have been charging that fee.

The fee is purely meant to offset the price that they are charged by their credit card processor to actually process payments made via credit card. However, there are some surcharge regulations that the business has to follow in charging this fee.

The percentage that is charged for the credit card convenience fee can’t be higher than 4%. This usually sets the percentage charged between 2-4%. 

This percentage being low makes a convenience fee not have a huge impact on a small purchase. For example, a 4% charge on a $50 purchase is still only $2. 

However, as the purchase amount of the product grows, obviously so will the fee attached to the product.

In addition to being legal in those 40 states, there is another key factor that plays into making convenience fees legal. The business must alert the customer to the transaction fees before they actually pay for the product.

A customer pricing notice must be visible to inform customers of the customer service charge when paying with a credit card

This protects the customer from paying more than they thought they would be paying and gives them the option to use a different payment method that won’t charge them an extra fee.

Is it Legal to Pass Credit Card Fees to Customers?

It is legal to charge credit card convenience fees to customers using either a credit card convenience fee or a surcharge in 40 of the 50 states. 

When people hear that the purpose of a credit card convenience fee, as well as a surcharge, is to pass the processing fee to the customer, they usually ask this question.

It is legal because both of those types of fees offer the customer an alternative way to avoid paying that fee. With both fee programs, the option of paying with cash to avoid an additional fee is there if the customer wants to take it.

Each transaction will carry the same processing fee. Because of the high price to accept rewards cards and cash back credit cards, the percentage is driven up to cover them.

Is There a Way to Avoid Credit Card Convenience Fees?

Credit card convenience fees are unavoidable if you insist on using the method that will incur the fee. 

However, as long as the business is following the previously stated law of alerting the customer of the fee before the mobile credit card transaction, you have the option to simply pay with a different payment method.

Person debating whether to pay with cash or credit card

If the business is maintaining all applicable laws and charging fair credit card convenience fees, though, there is nothing that the customer can do besides simply change payment methods.

From the Perspective of a Customer

It’s no fun paying extra for the payment method that is most convenient for you. We understand how it feels. 

There’s fees that all of us don’t like. Just the other day, I was hit with a fee for doing a balance transfer from a checking account to a savings account between separate financial institutions.

It can be especially annoying when you don’t have cash and didn’t know that the business that you’re purchasing a product from begins charging convenience fees.

It can feel like you’re almost being cheated at times, like the extra charge is unfair and dishonest to you.

When you feel this way, we encourage you to think like a business owner and realize that they also do not want to have to charge their customers an additional fee. 

However, it is all dependent on the amount that they are charged from their credit card processor to actually process the transaction.

From the Perspective of a Business Owner

Again, we encourage you to put yourself in the shoes of the business owner and think how inconvenient it is for them, too, to have to pay the fee that credit card companies charge them just to accept payment through a non-cash or credit card method.

If they choose to not charge a fee on each purchase that requires them to pay a percentage to their processor, they will lose that percentage on each purchase and it will not be offset by anything, on top of the rest of the annual fees they have to pay to their processor.

How credit card fees affect the merchant

It is purely just a loss that the business will have to incur unless they charge customers the same percentage that they must pay on each of those purchases.

Many businesses have to internally debate whether or not they should charge a fee on purchases that require them to pay a percentage back to their processor. 

On one hand, it can help them offset the cost and basically incur no loss for taking credit card payments through an alternate method. 

On the other hand, it’s charging their own customers more money than they thought they would be paying and they risk the possibility of the customer leaving because of the extra charge.

So it’s not easy for the processor to charge the customer an additional fee, either. They don’t do it purely for a little extra income, but to offset a fairly high charge that they have to pay on each and every purchase made through an alternate payment method.

What Should I Look For in a Credit Card?

Because of the impact that a rewards card can have on the business that processes it, we implore you to compare cards before making a decision on what kind of credit card to get.

While comparing credit cards, find which ones you are eligible for. Some credit cards are only available to people who qualify because of great credit score.

Credit score affects everything in either a positive or negative way. For example, car insurers or life insurance firms will give better quotes to those with better credit score.

It can seem like everything will impact your credit score. Not paying off student loans or personal loans in a timely manner can result in bad credit score.

Even trying to get a business credit card can be tough, depending on business loans that you have received and if they have been paid back. Good credit score can even affect the mortgage rates that you receive from mortgage lenders.

So when looking for credit cards to apply for, keep in mind that your credit score could very well impact the cards that you will qualify for. You may have to settle for cards with lower rewards in order to get a credit card before you are able to build your credit score back up.

When looking for a credit card, it all comes down to personal preference. 

Conclusion

Many guides to credit card convenience fees will have an alternate agenda, likely trying to get you to join their service or buy their product. 

Maybe they’re a third party personal finance blog, trying to show you why credit card convenience fees are a bad thing.  

We just want to show you the ins and outs of charging credit card convenience fees so you’re not surprised the next time you see them. We don’t take a stance either for or against convenience fees.

Here at Dual Payments, we want you to know all about credit card convenience fees so that the next time you see them, you will know what they are and how they work.

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Example of High Risk Merchants

  • 1-900 Phone companies – If you’re the type of company that charges people to have a chat on the phone, you’ll be considered high risk.
  • Adult Bookstores – Clearly a part of the adult entertainment industry, and an easy mark for the high risk tag.
  • Adult Entertainment – Any business labeled with the “adult” descriptor will automatically be assigned a high risk status.
  • Adult Toys – As “adult” is in the name, it’s an easy target for association with the adult entertainment market.
  • Airline Industry – Due to cancellations on high ticket purchases, this will put your airline company in the high risk category
  • Amazon Stores – By having a high rate of return, Amazon stores are seen as high risk.
  • Ammo Sales – Association with the weapons industry guarantees high risk status.
  • Annual Contracts – Any time an annual contract is involved it can be considered highrisk because most consumers forget they signed up and chance of chargeback can be high.
  • Antiques – With a high average ticket per item, antiques are considered a risky merchant type.
  • Astrology – The study of the celestial bodies and the influence on human affairs can be a chargeback target if customers feel like they aren’t getting the answers they want.
  • Auctions – Because of the nature of bidding on a product and not having a set price the risk level goes up.
  • Autographed Collectables – There is almost always a question as to whether an autograph is authentic, and therefore chargebacks are much higher in this industry.
  • Automotive Brokers – Brokers of automobiles have a very high average ticket are are therefore of higher risk.
  • Bankruptcy Attorneys – Since the people who are working with bankruptcy attorneys are usually in financial trouble, the odds that a payment would be charged back is higher.
  • Betting Services – In many states betting is illegal but for the legal states betting with a credit card has huge chargeback implications.
  • Brokering – When a third party is involved with selling a product the risk level goes up ten fold.
  • Business Loans (Merchant Cash Advances) – Loaning money is always risky, but with business loans and startup lending, high risk is present by the nature of the business.
  • Casino – Just like a betting service, if a customer gambles with their credit card the chargeback rate sky rockets.
  • CBD Products – CBD itself poses high chargebacks because of the legitimacy of the product and the health benefits promised.
  • CBD E commerce – CBD E Commerce has twice the charge back of retail CBD because many consumers don’t feel like the product they receive gives them the benefits promised.
  • Check Cashing (Check Processing) – The level of fraud in check cashing and cash advances is what gives this industry a higher risk consideration.
  • Cigarettes – With higher levels of risk for theft and criminal activity, cigarette sales are deemed high risk.
  • Collection Agencies (Collection Agency) – Many banks see collections as an unsustainable business model that is many times unreliable.
  • Collectible Coins – A higher level of chargeback in this industry gives it a high risk tag.
  • Collectible Currency – Due to the level of inauthentic collectibles, the risk of chargebacks are much higher with collectibles.
  • Copyrighted eBooks – When someone sells something copyrighted without permission many legal issues can arise.
  • Coupon Programs – With many coupon programs the coupons expire and once they expire the consumer wants the money back they spend.
  • Credit Counseling – Due to their clients usually being in financial problems, this industry is fraught with non-payment and fraud.
  • Credit Protection – Most people that need credit protection are bad with money so chargebacks abound.
  • Credit Repair – If a consumer needs credit repair then chances are they are a high risk for chargebacks.
  • Currency Sales – Many businesses that exchange currency do it at incorrect rates hence more chargebacks.
  • Dating Services – Dating is a volatile industry, and is also lumped in with the adult entertainment industry, making it a high risk account.
  • Debt Collection Services – As the collection of debt isn’t always possible, this industry retains the tag of risky.
  • Debt Consolidation Services (Debt Consolidators) – Consolidating debt is a challenging business and as debt is usually the problem, it’s seen as unsecure from a payment perspective.
  • Debt Repair Services – Since the clients of debt repair services are usually having financial challenges, it makes this industry seem a higher risk.
  • Discount Health Programs – Many people don’t feel they are really getting a discount so they try to get their money back and if they don’t the chargebacks sky rocket.
  • Discount Medical Care Programs – Just like the discount health programs if they don’t save the consumer wants their money back.
  • Drug Paraphernalia – Anything that is associated with the drug trade is considered high risk. Offshore merchant accounts are commonly used for this type of business.
  • E Commerce – As the source of the payment is unverifiable at the point of sale, any transaction without the card present has a higher risk of credit card fraud.
  • Ebay Stores – Many people sell items that aren’t as described so chargebacks can be an issue.
  • Electronic cigarettes – much like traditional cigarettes, e-cigarette sales are also deemed high risk.
  • Electronics – This industry has a much higher ticket compared with many other businesses. A chargeback for a $3,000 tv or two and your account can be in jeopardy rather quickly.
  • Escort Services – This is deemed a part of the adult entertainment industry and therefore needs a high risk merchant account and payment solution.
  • Event Ticket Brokers – If a customer buys a ticket and doesn’t use it they feel like they can charge the transaction back.
  • Extended Warranty Companies – Warranties are rarely used so people try to charge back the money that has been spent paying for them.
  • Federal Firearms License Dealers – Any organization associated with guns or firearms is automatically considered in this category.
  • Fantasy Sports Websites – Just like gambling, if a person starts to lose too often they try and charge back the transaction.
  • Finance Brokers – The entire financing industry is risky. By simply extending credit to other individuals, this business is betting that a majority of them will actually pay what they say they will.
  • Financial Advising/Consulting – The high risk tag on financial advisors isn’t about the advisors or their firm. It’s about the clientele and their current circumstances.
  • Financial Loan Modification Services – Due to a clientele in financial struggles, the high risk term is applied to any payments in this industry.
  • Financial Planning – Anything that includes risk for the consumer can have consumer implications with chargebacks.
  • Financial Strategy – Another risk and reward category, if money is lost, consumers try charging back making this a high risk industry.
  • Fortune Tellers – When a person doesn’t hear what they want to hear, or what is told doesn’t happen, the fortune teller can receive huge chargebacks.
  • Furniture Sellers – High risk only when its custom furniture.
  • Gambling – If money is lost the chargebacks rise.
  • Gaming – Chargeback levels skyrocket when consumers don’t win.
  • Get Rich Quick Programs – It’s rather common in this industry for an individual to purchase the training and then chargeback their purchase saying it didn’t deliver on what was promised.
  • Google Stores – With a high rate of return on their items, Google stores are considered high risk.
  • Gun Sales (Firearm Sales) – The gun and projectile industry is automatically associated with high risk credit card processing.
  • High Average Ticket Sales – With any high average ticket, just a couple of chargebacks can mean a massive shift in how risky the account is deemed by the processor.
  • Home/Vacation Rentals – Many issues with chargebacks can take place if the consumer decides not to travel.
  • Horoscopes – Many people believe this is hocum so will chargeback transactions.
  • How To Programs – A common practice in this industry is to purchase the program and charge it back with the description that it didn’t deliver what it promised.
  • Hypnotists – Many merchants will charge back these transactions if results they hoped for were not met.
  • Import/Export Business – Another example of taking goods over country borders which automatically brings in additional risk to any processing account.
  • Indirect Financial Consulting – When using a third party to consult, the high risk status gives the processor fraud protection.
  • International Cargo – Any time you introduce a multi-country element to credit card processing, the ability for fraud to be introduced skyrockets.
  • International Merchants operating in the US – Since the merchant isn’t operating from the United States, there are many unknowns about what is happening on the other side of their business, thus increasing the risk.
  • International Shipping – Transporting goods between countries is risky and introduces all sorts of elements to the financial stability of any transaction.
  • Investment Books – consumers get upset if the investor isn’t right which can lead to chargebacks.
  • Investment Firms – As investments are never a “sure thing” this is considered a risky industry for having a merchant account.
  • Investment Strategy – Anything with future promises can lead to chargeback.
  • Knife Sales – weapons of any kind are automatically given high risk status.
  • Kratom E Commerce – Accepting payments online is high risk, and Kratom is a substance in the health and wellness industry, which is also considered high risk.
  • Life Coaching – With no tangible goods involved in the transaction, life coaching is considered high risk.
  • Lingerie Businesses – Associated with the adult entertainment industry, chargebacks abound.
  • Lotteries – In most states you can buy lottery tickets with a credit card but if you’re allowed to and the ticket is not a winner, consumers try to chargeback the transactions.
  • Magazine Sales – Many magazine sales are recurring subscriptions, which can have issues with chargebacks.
  • Magazine Subscriptions – Same as magazine sales chargebacks can be huge when a recurring subscription happens. (often referred to as recurring billing.)
  • Mail Order Companies – When something is ordered through the mail chargeback risk can go up.
  • Marijuana Dispensaries – As marijuana isn’t a legal substance in every state, this is considered high risk due to the legality of the product. Cannabis credit card processing is available through Shift Processing.
  • Matchmaking Services – Another branch of the dating tree, and often associated with the adult entertainment industry.
  • Medical Devices – If a medical device doesn’t do what’s promised the purchaser may chargeback the transaction.
  • Membership Organizations – This is another instance of where the transactions don’t have any tangible product and are easily charged back to the merchant account.
  • Merchants on the MATCH list – If you are a merchant who has been reported to the MATCH list (Member Alert to Control High Risk Merchants) or the TMF (Terminated Merchant File) you are given high risk status.
  • Merchants with Poor Credit – Merchant accounts are given based on the credit score of the business owner. It’s assumed that the business owner is going to be making the financial decisions for the business, and a poor credit score reflects on the viability of any business transactions.
  • Modeling Agencies – At many agencies models are promised the world and it doesn’t happen. The consumer then wants their money back.
  • Movie Downloads – Transference of a digital product is considered of higher risk. Also, rarely is a physical card present at time of purchase.
  • Multilevel Marketing Sales – Often associated with pyramid schemes, MLM sales are considered a risky business.
  • Music Downloads – Purchasing any digital product is considered to be of higher risk than a physical transaction. Most of the time the card is not present in a digital transaction using a shopping cart.
  • Not A US Citizen Doing Business In The US – It’s possible to get a merchant account without a US social security number, but not having a SSN will increase the risk the processor will have in issuing a merchant account for your business.
  • Online Adult Membership Sites – If you’re running a website that is adult themed and requires payment for access, this is a highly volatile account and definitely high risk.
  • Offshore Corporations (Offshore Merchants) – The international element is what gives the high risk tag when looking for domestic merchant accounts.
  • Online Gambling (Online Gaming) – Without a card being present and gambling as the activity, there are two reasons why this would be on this list. Online payment alone is risky even without the gambling element.
  • Overseas Exporting Services – The introduction of the international element is what gains access to this list.
  • Pawn Shops – There’s a general stigma that goes along with pawn shops, and it’s reflected in their assignment to the high risk processors list.
  • Penny Auction Sites – Even though the customers are usually bidding at only a penny more per bid, users will commonly charge back the transaction when they don’t win.
  • Pepper Spray – Considered a type of weapon, pepper spray vendors are considered risky.
  • Points Programs – Points programs that cost money can cause chargeback issues if points are not used.
  • Pornographic Merchants – If you’re a part of the adult entertainment industry in any way, you’re considered high risk.
  • Precious Metals – Counterfeit metals can be a problem in this industry, making it more risky to accept payments for.
  • Prepaid Calling Cards – Anything prepaid that a consumer may not use increases chargeback issues.
  • Prepaid Debit Cards – When they expire or are lost consumers want their money back.
  • Psychic Services – “Honey, did you visit a psychic? No babe, I don’t remember visiting a psychic.” I’ll just reverse that charge then.
  • Real Estate – A common target for scams and identity theft is how real estate makes this list.
  • Replica Products (Watches, Handbags, Wallets, Sunglasses, Etc…) – As the product being sold isn’t authentic to the original manufacturer, the percentage of requests for refund is much higher than a traditional merchant.
  • Rewards Programs – If rewards are not spent, the consumer wants the money back.
  • Self-Defense – Since the payment provided is for instruction and not a physical product, the self-defense industry makes this list.
  • Self-Hypnosis Services – Yet another instance where the goods being transferred are of a service and not a physical product.
  • SEO Services – With a high rate of request for refund, SEO agencies make this list.
  • Social Networking Sites – Just like a dating site, if a consumer does not get what they want from it, they always like to chargeback.
  • Software Downloads – The software industry makes their way on to this list because of the digital nature of the goods being sold.
  • Sports Forecasting – An example of paying for information and not for a product, and usually not in person where the card would be present for the transaction.
  • Startups – Every startup is considered risky, and the percentage of startups that make it is quite small compared to the number that fail.
  • Student Loans – With the cost of a college education continually on the rise, so is the percentage of loans that default and never receive payment.
  • Strip Clubs – Associated with the adult entertainment industry gains the strip club access to this list.
  • Stun Gun Sales – considered a type of weapon, which makes it a high risk merchant.
  • Supplement Sales – The request for refund in this industry is quite high due to the nature of the product.
  • Sweepstakes – “Hey, I entered a sweepstake and I didn’t win. I’d like my money back please.”
  • Talent Agencies – “I paid thousands of dollars for headshots and glamorous outfits and I haven’t gotten any paid gigs. Pay me back my money please.”
  • Telemarketing Services – Telemarketing services many times do not have the results the purchaser would like to see, so the services are charged back.
  • Telephone Order Sales – Anything ordered over the phone has a increased risk of chargeback.
  • Timeshare Companies – When timeshares aren’t used, people want their money back.
  • Travel Agencies – If trips are not taken, consumers would like their funds returned.
  • Travel Clubs – Many travel club discounts aren’t what they were promised, increasing risk for chargebacks.
  • Vacation Rental Brokers – Third party brokers on prepaid vacation can have issues when customers cancel their trips.
  • Vape Shops – The level of criminal activity and theft is higher with vape shop merchants and therefore carries a high risk label.
  • Vitamin Sales – If the vitamins don’t provide the results the merchant would like to see they chargeback the transactions.
  • Web Designer – Because this service is prone to chargebacks, it has been classified as high risk.
  • Weight Loss – Considered risky because the results aren’t really up to the company, but rather the individual has to stick to the plan to get results, often resulting in chargebacks.
  • Yahoo Stores – Since the goods sold through Yahoo can easily be returned, they are considered a risky merchant.

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