A credit card convenience fee is an additional charge that a merchant collects on a purchase to compensate them for accepting your card vs. their usual form of payment. Perhaps they usually accept cash, check, or an electronic transfer, and allowing you to use plastic requires more time and effort for them or it triggers fees for them.
Given that more than 80% of Americans use credit cards, it’s likely that most people get hit with a convenience fee at some point. Here’s what you need to know about how they work and how to avoid them.
What Is A Convenience Fee?
A convenience fee is a flat fee, such as $1, or a percentage of your purchase (up to 4%) that’s tacked onto the cost of your transaction that you, the cardholder, are expected to pay. Here’s some more intel about these fees:
• A credit card convenience fee is typically charged by merchants when a customer uses a credit card in a payment channel that isn’t the usual one for the business. For instance, if a trade school usually accepts payments in-person and you choose to pay online, you might be assessed the additional fee for the convenience of not turning up at their place of business.
• The fee can reflect a merchant trying to pass along some fees they pay when you choose to use a credit card vs. other methods. When merchants allow a customer to use a credit card as a payment method, they (the retailer) are charged a credit-card processing fee for the transaction. By charging a convenience fee, the merchant may offload that processing fee.
In some cases, a retailer will factor such credit card fees into their business model and won’t pass along the additional charge. That is why you may notice that convenience fees seem somewhat random. However, convenience fees must be disclosed when they are charged; they can’t be added without a consumer being informed of them.
Example of a Convenience Fee
Here are examples of convenience fees in action:
• When you fill up your tank at a gas station, you may notice that the price for gas is, say, 2.5% or 3% higher per gallon if you pay with a credit card vs. cash. That could be how the gas station owner recoups the credit card processing fees they must pay on such transactions.
• You might pay an extra charge of a couple of dollars when you buy movie tickets online or via an app instead of at the box office. You enjoy the convenience of buying something with your card (and perhaps snagging seats to a show that could sell out), and the merchant is able to offset their costs somewhat.
Recommended: How Does a Credit Card Work?
Why Do Convenience Fees Exist?
The main reason you’re getting stuck with these convenience fees is because the merchants have to pay processing fees to payment networks, as noted above.
• The payment networks or payment processors work with credit card issuers (like your bank) and the card network (Visa, Mastercard, Discover, American Express) to make sure the transaction is secure and processed smoothly.
• The bank that issues the cards often charges the merchant a credit card processing fee for allowing them to accept this card. This is typically between 1.5% and 4% per transaction. The merchant might pass those fees on to you, the consumer, as a convenience fee.
This is also another reason some small businesses may not accept credit cards at all: They don’t want to have to pay the fees associated with taking them or pass them on to you
Credit Card Company Rules on Convenience Fees
Here’s the breakdown for how some of the major credit-card brands handle fees.
| Brand | Rules for Merchants on Convenience Fees |
|---|---|
| Visa |
Merchants can typically add convenience fees on all nonstandard payment methods. The fee must be disclosed to customers, and an alternate payment method must be offered. Merchants usually charge a flat fee vs. a percentage of the sale. |
| Mastercard |
Retailers must inform customers about the charge before finalizing the sale. The fee must apply to all similar transactions, such as all online credit card sales, not just those made with a Mastercard. |
| American Express | Typically, convenience charges are not allowed, with some exceptions, such as for government agencies. |
| Discover | The retailer cannot charge convenience fees to Discover cardholders unless it charges the same fees to those using credit cards from other card issuers. |
Convenience Fees vs Surcharge Fees: What’s the Difference?
While they both add to a purchase’s cost, here is the difference between what you may hear referred to as convenience fees and surcharge fees.
• A surcharge fee covers the cost of you having the privilege of using a credit card. It’s added before taxes. Sometimes called a “checkout fee,” it is usually a percentage of the sale. Credit card surcharges are prohibited by law in a number of states. These charges are currently illegal in Connecticut, Maine, Massachusetts, New York, and Puerto Rico, but these laws are subject to change.
• A convenience fee, as noted above, typically covers the cost of doing a transaction with a credit card instead of another payment method. Sometimes this is charged as a percentage of the transaction. Other times, it is charged as a flat fee, regardless of the cost of the products or services purchased..
How Can Convenience Fees Be Avoided?
When you’re trying to avoid credit card convenience fees, you can use these tactics:
• You can choose to pay with a method other than plastic, such as cash, check, or money orders at some merchants. Or you may be able to use an electronic payment, such as an e-check or ACH payment.
For example, if you’re paying for college tuition, you might be able to set up an online payment using an electronic check, money order, or personal check. At some schools, this could save you nearly 3% per payment transaction. (That being said, if you have a high-rewards credit card, conducting an expensive transaction might be beneficial if you can get cash back.
• You can scan for notices about convenience fees before conducting a transaction. You can look for posted signs in brick-and-mortar locations and read the payment terms on websites and in apps.
• You can ask before purchasing a product or service if paying by cash will save you money (this can sometimes be the case with service providers) or if using a credit card will trigger a fee.
Credit card fees are fairly common today, so you want to be alert to how they can crop up and avoid them when you can.
Recommended: How to Use a Credit Card
The Takeaway
Knowing that credit card convenience fees (and surcharge fees) exist, whether they are legal in your state, and how to avoid them can help save you money in the long run.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Why am I being charged a convenience fee?
A credit card convenience fee typically reflects that the merchant is willing to accept plastic vs. other payment methods they usually take. These fees may be a way that merchants recoup the processing fees that they then must pay when they allow customers to use a credit card.
Is it legal to charge a convenience fee for credit cards?
Credit card convenience fees are currently legal in all U.S. states but must be disclosed; they can’t be added on without a customer being informed.
How to avoid credit card convenience fees?
You can usually avoid credit card convenience fees by using an alternate payment form, such as cash, check, or electronic payment.
Photo credit: iStock/blackCAT
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