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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 many people get hit with a convenience fee at some point. Here’s what you need to know about how these fees work and how to avoid them.
Key Points
• A credit card convenience fee is a flat fee or a percentage of your purchase added to the cost of your transaction.
• The main reason for this fee is that merchants have to pay credit card processing fees to payment networks.
• Some small businesses may not accept credit cards to avoid paying the fee or passing it on to the customer.
• Major credit card brands, including Visa, Mastercard, American Express, and Discover, have different rules for handling convenience fees.
• You can avoid these fees by using alternate methods of payment, such as cash, check, or an electronic payment.
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 an 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, meaning 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 that the merchants have to pay processing fees to payment networks, as noted above.
• The payment networks or payment processors work with credit card issuers (such as your bank) and the card network (Visa, Mastercard, Discover, or 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 1.5%-3.5% 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 must charge a flat fee, not a percentage of the sale. |
| Mastercard |
Retailers must inform customers about the charge before finalizing the sale. The fee must apply consistently to all similar transactions, not just those made with a Mastercard. |
| American Express |
Merchants classified in government, utilities, rental, or certain education industries may assess convenience fees on charges. The fee must be charged consistently and not exceed that charged for other payment products, except automated clearing house (ACH) funds transfers, cash, and checks. |
| Discover | The retailer cannot charge convenience fees to Discover cardholders unless it complies with Discover’s card network rules. |
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, 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 eCheck 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 up to 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’ll 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, the regulations merchants must follow when charging them, and how to avoid them can help save you money in the long run.
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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 generally legal in all U.S. states. However, 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. For example, you could use cash, a check, or an electronic payment.
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