You don’t want to just “Roll the Dice” or “go with the flow” when it comes to assessing payment fees for credit card payments. There are many things to consider dependent upon your location, merchant code and more. We invited two guest contributors to bring some simple clarity so you can navigate the credit card payment acceptance path without risk. Their post follows:
Making an informed decision about payments requires having a handle on the rules that govern card acceptance.
Noble’s Intelligent Rate was created as a solution with this background in mind, and our conversations in higher education suggest that a discussion about a new approach to processing should start by laying out the regulatory background for your payment choices.
We hope this “at a glance” survey of the rules will be helpful towards that end. Of course, in this format, not every important consideration can be explored; our goal is to provide not the final word on this complex subject, but rather practical guidelines with which you can start a discussion with your own advisors about how best to meet your institution’s administrative and economic interests.
Most of the rules that spell out what your institution can and cannot do in accepting credit and debit cards are the product not of law, but rather what the card brands (such as Visa and MasterCard) allow.
Service / Convenience Fees
Under these brand rules, a special set of provisions applies to institutions in higher education or government. These provisions can be found in Visa’s “Government and Higher Education Payment Program” and MasterCard’s “Convenience Fee Program for government and education.” In sum, these programs allow institutions to cover the cost of processing payments by charging cardholders a “service fee” or “convenience fee” (Visa’s and MasterCard’s respective terms for the fee).
For simplicity’s sake, we will refer to this fee as a “service fee,” but the goal of the overview below is to give a straightforward account of the salient rules as they apply to institutions that want to accept all four of the major brands.1
Overview of Service Fee Rules
- The service fee can be applied to tuition, tuition-related, and other qualifying payments, such as for room and board
- The service fee must be processed as a separate transaction from the primary payment
- The service fee can be charged to debit cards as well as credit cards—and institutions can choose whether debit cards and credit cards will be charged different amounts or the same rate
- The amount of the service fee must be disclosed to the cardholder before the transaction is processed
Even within higher education, the brand rules state that service fees cannot be applied to certain kinds of payments, such as those to alumni organizations or at sporting events. In these situations, a number of institutions choose to pass on processing costs in the form of a “surcharge.”
In contrast with the service fee programs, the brands’ surcharging rules are open to not only higher education or government institutions, but rather merchants of all kinds (such as retailers). And the surcharging rules are relatively new, having become effective in 2013.
Overview of Surcharging Rules2
- The surcharge must be processed together with the purchase amount as a single transaction
- The surcharge may only be applied to credit cards, and must not be applied to debit cards
- The amount of the surcharge must be disclosed to the cardholder before the transaction is processed
In addition to the brand rules, a handful of states have legislated restrictions on whether and how fees can be charged to consumers when they make payments by card.
States with Restrictions on Cardholder Charges
California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Texas, and Utah
These eleven states have enacted different laws, and many of these states have included provisions that, subject to certain requirements, permit institutions in higher education or government to charge a service fee. For this reason, our recommendation to institutions in these states is to review the laws that apply to you in view of this possibility.
1In addition to the aforementioned Visa and MasterCard programs, please see American Express’s “Merchant Regulations” and Discover’s “Operating Regulations” for more information.
2This overview of surcharging brand rules applies to Visa, MasterCard, and Discover. For now, merchants who add a surcharge—as distinguished from a service fee—in particular channels cannot accept American Express in those channels. However, a federal court granted preliminary approval last year to a settlement by which American Express would modify its rules for surcharging to coordinate better with the other brands’ rules.
“Tuition Management Systems (TMS) is the sponsor of this post. All information and opinions of the contributors are provided for informational purposes only. As with any other service you seek, the recipient of the information is responsible for conducting appropriate research and making relevant decisions. TMS neither endorses, has any responsibility for, nor exercises control over the views of any contributor to this article or the accuracy of the information provided by any of them.”