is it illegal to charge the processing fee to clients when they use the credit card?
Oct 26, 2009
in
Credit Card Machines
We have a small business and I was wondering is it illegal to charge the client the 3% that the credit card machine charges us? Please tell me where I can find the answer so I can show it to my accounting department.
Like this post? Subscribe to my RSS feed and get loads more!
8 comments
Pablo on October 26, 2009 at 11:48 pm
Yes, it would be illegal. According to your agreement with your credit card processor you cannot add the fee to your clients. However you could raise your prices to accommodate for use of credit card. What you could do is not accept credit cards at all. If you would like you could only take certain credit cards Visa or Mastercard.
Here is an article that goes into detail about this exact topic:
http://www.newrules.org/retail/news/soaring-credit-card-transaction-fees-squeeze-independent-businesses
M.I.A on October 26, 2009 at 11:48 pm
Its not illegal, however, you are violating the agreement that you made with the company where you got the machine from. So I definitely think there is no way of getting around this unless you build a business based on cash. By the way, isn’t american express fee like 7%, so be happy just by taking visa and mastercard.
To Smarta$$, there is no way that if you charge higher prices that its going to get around that. If you think about it, if you charge an extra 3% then when you process it, you will get charged 3% of the transaction. What will you gain?
Lisa A on October 26, 2009 at 11:48 pm
No, it isn’t. The law is silent on this.
However, it is not allowed under the agreement that you signed with your credit card processor. That is the document that you should consult and show to your accounting department.
Dan B on October 26, 2009 at 11:48 pm
There is no law against it. But it may be against your agreement with your credit card processor. You have to check with your credit card processor and the agreement you have with them. You may not be able to tack on a separate fee. If they say no, you can probably evaluate the $ amount of cash vs credit/debt transactions and raise your prices about 1c-2c per item to bury the cost. All retailer do that. They have to. They do that for their electric bills, wages, business licenses and all overhead they encounter. All these costs are buried in the retail price of the products sold.
Your credit card processor cannot dictate to you what you price you place on your products.
SmartA$$ on October 26, 2009 at 11:48 pm
No, its not illegal, it doesn’t violate any law.
However, it does violate the credit card agreement that you must sign before Visa, Mastercard, or any other credit card company will allow you to accept their cards.
The difference here is that a law enforcement agency can’t just arrest you or shut you down for charging the fee like they could for breaking a law. The credit card company can sue you for breach of contract, and they will have a valid case since you agreed to the contract, but its not a violation of law.
Companies circumvent that restriction in a number of ways:
1. Charge higher prices but give a cash discount
2. Simply charge higher prices and pocket the extra 3% when someone does pay by cash or check
3. Get clever, don’t call it a processing fee, call it a convenience charge or service fee.
4. Simply refuse to accept credit cards on large purchases
5. Just charge the fee and hope you’re small enough to fly under the radar and not get caught by the big companies that have better things to do than police your small business.
In reality a 3% credit card fee is part of the cost of doing business in today’s world. Any of the suggestions I mentioned above are likely to cost you some business because customers are just so used to being able to pay with credit and they’re generally unwilling to pay an extra fee. Personally, I think the best option is to set prices with the 3% built in, then give a discount to customers who pay by cash or check. That will encourage customers to pay with cash, AND make them think they’re getting a good deal.
SPIFIMAN1 on October 26, 2009 at 11:48 pm
Illegal no, but it is a violation of your agreement with the credit card companies.
Most businesses get around this by simply offering a discount for people that pay with cash.
This way your covered both ways.
WRG on October 26, 2009 at 11:48 pm
It is a violation of your agreement with the credit card company.
Judy on October 26, 2009 at 11:48 pm
Not at all.
Three years ago, when I tried to charge my property taxes on my credit card they told me upfront they would charge me a 2% charge.
My response "well, then, I’ll pay on the due date". "You’ll have to wait 90 days and hope my check is good".
I also wrote a letter to them explaining that a credit card is guaranteed payment, a check can bounce. Also, that they could have had that money much more sooner.
This year, they accepted my payment by credit card without charging me.
Accepting credit card payments is guranteed and fast.
No hassles about bounced checks or waiting for money to clear.
Are you sure you want to turn away your credit card customers.
No credit card user is going to pay this fee - not one.
Also, I wanted to buy a small boat on the credit card.
They wanted to charge me a fee - I walked away.
/