# is it legal for vendors to add fees to credit card purchases?



## the-royal-mail (Dec 11, 2009)

We're having this debate on another forum and I felt CMF would be a good place for some well-informed opinion about this. The issue is that someone posted a list of items he was selling and he asked all paypal users for a % to be added to the total selling price. I stated that this was illegal and was surprised at the number of people who disagreed with me. I also did some quick google searches and all I could find is that the merchant agreements that most credit card companies (VISA, MC etc) use expressly forbid surcharges/fees to credit card users. I had thought this was also against the law, but am having a bit of trouble finding any actual legislation preventing this.

Does anyone here know what the law says about this? Or is it up to each CC issuer to set the rules?

Is this the best info there is?

http://wiki.answers.com/Q/Can_merchants_charge_a_fee_for_using_a_credit_card


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## Dana (Nov 17, 2009)

I can tell you that back in the day when I was a banker it _was_ illegal for vendors to pass credit card transaction fees onto their clients. This was part of the Interest Rate Act which is a federal legislation. 

I once had a client who purchased a luxury car from a luxury car dealership. When she went to put the entire purchase on her AMEX (she had contacted AMEX and warned them that this transaction was imminent) the dealership told her they would pass on the transaction fee to her. I contacted AMEX on her behalf and they explained the legislation to me and contacted the merchant directly to sort it out. 

I tried to put a car purchase on my credit card in September and the dealership would only allow me to charge $5k because the transaction fee is a % of the transaction and it would cut into their profit if they allow me to charge more than $5k. 

That being said, my independent dry cleaner tells me that if I insist on using my AMEX there she will add the transaction fee to my purchase because it is so high.


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## Addy (Mar 12, 2010)

It's still that way (we own a small business), it's in the agreement between the cc company and the vendor that you can not add fees on and charge the customer. A lot of places still do it though. I imagine you could complain to the cc company and maybe they will refund the fee to you and charge back to the company if the company isn't willing to comply with their agreement. Then again, the company may stop accepting credit cards after that....!


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## Four Pillars (Apr 5, 2009)

For the record - PayPal is a not a credit card. It's a method of transferring money.


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## travelgeek (Nov 29, 2009)

it is prohibited in merchant agreements here, but in countries like Australia and New Zealand, it is quite common for vendors to add a surcharge for using credit cards.


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## slacker (Mar 8, 2010)

There's been a lot of loose use of terminologies on this forum.

I'm not a laywer, but:

There's no criminal or civil law that states that a merchant cannot charge extra fees.

But the merchant agreed to not do so with the CC companies. That would be governed under contract law. The police is not going send the SWAT team after the merchants. The CC companies may have some recourse against the merchant for violating their agreement. That recourse may be on the signed agreement, most likely termination of service to the merchant.

Having said that, there are anti-trust laws that governs the conduct of businesses that hold a commanding position in the market. IMO, the NSR (no surcharge rule) that CC companies enforce on the contracts are anti-competitive and is against public interest. There is no viable alternative, and everyone pays for the system regardless of whether they pay by cash or credit card.


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## GeniusBoy27 (Jun 11, 2010)

On the other hand, if they gave you a cash discount, that would be legal, wouldn't it?

To me, it's purely semantics. But the agreement is with the credit card company, which under contract law, has to enforce it.


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## andrewf (Mar 1, 2010)

"IMO, the NSR (no surcharge rule) that CC companies enforce on the contracts are anti-competitive and is against public interest. There is no viable alternative, and everyone pays for the system regardless of whether they pay by cash or credit card."

Definitely. I call it the credit card tax. I pay the tax whether or not I use the card, so why not use the card and get some points. If merchants were allowed to charge the user what these payments methods cost, I would happily switch to debit and save 2-3%.

Why don't people get outraged? This is like 2 or 3% of GST tacked onto every retail transaction. Only the proceeds go to the shareholders of Visa and Mastercard and card issuers rather than toward public services.


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## m3s (Apr 3, 2010)

GeniusBoy27 said:


> On the other hand, if they gave you a cash discount, that would be legal, wouldn't it?
> 
> To me, it's purely semantics. But the agreement is with the credit card company, which under contract law, has to enforce it.


Yup I know stores that offer a "cash discount" if you ask for it

Same way insurance companies get away with raises for policy rates for things they aren't allowed to by law... by removing "discounts"


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## marina628 (Dec 14, 2010)

It is common for ebay sellers to have one price for paypal cash and another for credit card funded transfers.Not sure if it is legal or not but if you want the item that bad you will pay the 3-4%.


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## tmlmom (Jan 30, 2011)

Is there a similar contract for debit cards? I know a few places in town that charge you extra for debit transactions under $5.


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## slacker (Mar 8, 2010)

Speak of which:

http://www.cbc.ca/news/business/story/2011/03/03/cfib-credit-card-campaign.html

I didn't know the merchant gets charged 1.5% to 3% of the transaction. That's massive !! 

I'd rather not have to pay for that (directly or indirectly).


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## the-royal-mail (Dec 11, 2009)

marina628 said:


> It is common for ebay sellers to have one price for paypal cash and another for credit card funded transfers.


Common? I shop on ebay regularly and I have virtually never seen that. It is most certainly against ebay and paypal's rules. They would remove that auction if they saw it.


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## the-royal-mail (Dec 11, 2009)

slacker said:


> I'd rather not have to pay for that (directly or indirectly).


The solution is to use cash and shop at stores which offer a discount for using cash.

Most people won't do this because they are basically too lazy to regularly withdraw cash from their bank ATM. Some also think the thieves lurk in alleys disguised as muggers, but the biggest thieves of all are those who perpetually invade your wallet in the form of fees for every single transaction. This takes more money out of your pocket than 5 lifetimes of muggers will ever do. I don't encourage this -- I use cash for small purchases and only use credit for most things over $25-30.

Anyway, the topic of the thread is to find out what the laws say about this. I wonder if that Retail Interest Act that was mentioned above still exists? Google turned up very little info in the way of actual legislation. Seems the CC companies are the ones who made these rules for the protection of consumers from unscrupulous vendors.


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## HaroldCrump (Jun 10, 2009)

the-royal-mail said:


> Most people won't do this because they are basically too lazy to regularly withdraw cash from their bank ATM. Some also think the thieves lurk in alleys disguised as muggers, but the biggest thieves of all are those who perpetually invade your wallet in the form of fees for every single transaction. This takes more money out of your pocket than 5 lifetimes of muggers will ever do.


LOL!
Did you notice that in the bank financial results declared yesterday, The Royal Bank reported that their biggest jump (as a %) is from _retail banking fees_.
The CEO was on the Lang-O-Leary show and he proudly boasted about the fact that this year they have made _more money than ever before_ with retail banking fees and services.


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## andrewf (Mar 1, 2010)

"Seems the CC companies are the ones who made these rules for the protection of consumers from unscrupulous vendors. "

LOL!

The rules are to protect their market share. It makes accepting credit cards all or nothing, and some of them can have fees upwards of 5%. If merchants were permitted to pass this cost onto cardholders, many, many people would stop using those cards and the card issuers would be losing their piece of the pie.


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## HaroldCrump (Jun 10, 2009)

TRM, the following news article may be of interest to you:

http://www.680news.com/news/nationa...petition-watchdog-face-off-over-merchant-fees

This past week, this was in the news again with the credit card issuers association (or whatever they call themselves) appealing to consumers to avoid using credit cards for small purchases because it increases the costs of the retailers.
Those costs are added into the prices of the products and as a result, everyone pays more.
The math was something like : using credit cards costs the retailer 1.5% (on average - higher for some cards like AmEx), which is spread across the price of all products, using debit cards (Interac in Canada) costs approx. $0.12 per transaction, regardless of amount.
Therefore, they are appealing to consumers to avoid using credit cards for small transactions.
The above linked news article is along the same lines.

I'd also like to mention that I'm noticing more and more retailers adding a surcharge for using credit cards under a certain amount (usually $10).
This is more common so far among small stores, mostly mom-and-pop or ethnic stores like oriental grocery stores.

This does not even address the issue of "reward points", which drives the costs up for the credit card issuers, are then passed on to the retailers and consumers, and gets averaged into all products and services.
As a result, everyone pays more for everything.

Now, having said that, if this is the trend and if this is likely to continue, then as an individual consumer it makes sense to _increase_ the use of credit cards, rather than reduce, since you will be overpaying for the same goods/services if you used cash or debit.

Back to your situation, I'm not surprised that your supplier is asking for a credit card processing fee, however, I'd personally not agree to pay it and simply shop elsewhere (unless the savings are substantial at that particular supplier).


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## liquidfinance (Jan 28, 2011)

Where vendors add a fee I will generally use debit or cash. However my rule is purely pay for everything on credit card. Pay the bill in full on the last day possible to take full advantage of the interest free period and keep the money in my bank. 

It was common practice to add paypal fees on ebay items back in the early days but I think once Ebay acquired Paypal they quickly outlawed it and auctions were promptly removed if people added any fees.


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## the-royal-mail (Dec 11, 2009)

Actually, it's the cc terms that prohibit surcharges for using a cc. It has always been this way, since long before ebay or paypal were invented. Paypal rules must comply with this.

Retailers want me to use debit? I don't think so! I use a cc because I want to control my purchases and see them on the statement, then pay off when I am ready. If the wrong amount is entered, or if there is fraud with a cc, I have that added layer of protection to dispute the charges. With debit cards, the money is gone from my account immediately.

Retailers need to step back and look at their place on the food chain. I choose the payment method based on what is convenient and works for me. In most cases, this means using cash but many times in stores I end up spending $30 or more when I only expected to spend $20. I usually don't discover this until I'm at the till and there isn't enough cash left in my wallet. That's when the CC comes out. I will not refrain from using my cc just because they don't like paying the fees. Their prices are already inflated to pay for these fees through the sale price of each item. When I use cash, as I often do, they are pocketing that difference that would have gone to fees if I had of paid with my cc. Funny they don't mention this. But at the end of the day, even if 100% of us stopped using cc's today, their prices would NOT go down as a direct result. They would come up with some bogus excuse for not lowering the prices. Gov't operates on the same principle, as Harold says they just expand to use the revenue they have, then invent new tax later when more revenue needed.


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## slacker (Mar 8, 2010)

Unfortunately, I have only ever encountered one store that offers discount for cash use. I find that it's best of both worlds. If I want to use cash and save a percent or two, I have the choice. If I want to use my "reward" credit card, I can do so at a cost of 1 or 2 % of the purchase price. The cash discount is effectively the same as adding a surcharge. So I wish they will get rid of the NSR (no surcharge rule) under anti trust laws. NSR is already illegal in most places in the world.

As a rule, I try to avoid anything with opaque price structure. Because where there is information asymmetry, you can count on the ignorant party (usually me) to suffer the worse end of the deal.


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## ghostryder (Apr 5, 2009)

slacker said:


> Speak of which:
> 
> http://www.cbc.ca/news/business/story/2011/03/03/cfib-credit-card-campaign.html
> 
> ...




Why shouldn't the merchant have to pay a fee? They are getting something (actually several things) for the fee they pay. Something the CFIB conveniently forgets to mention.


The merchant gets to offer a convenient and popular means of payment to customers. Customers (like me) who would simply walk out if a merchant demanded cash only.

They get to offer their customers credit without any of the administrative overhead of managing their own lending operation.

They completely offload all the risk of offering that credit to someone else. As long as they follow proper procedures, the merchant is guaranteed payment.



If merchants don't like the fees they pay, they are free to stop accepting them.


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## slacker (Mar 8, 2010)

ghostryder said:


> Why shouldn't the merchant have to pay a fee? They are getting something (actually several things) for the fee they pay. Something the CFIB conveniently forgets to mention.
> 
> 
> The merchant gets to offer a convenient and popular means of payment to customers. Customers (like me) who would simply walk out if a merchant demanded cash only.
> ...


I don't care how much the merchant gets charged, but I do care that they will have to pass the credit card fees on to me, regardless of whether I'm using a credit card or cash. Why do you think credit card companies are offering all sorts of rewards ranging from 1 - 3% cash back? Can't you see that the 1-3% cash reward is a hollow reward, because the retail prices are already inflated by a similar amount?

I'm saying that *I* as a cash user do not wish to subsidize the use of credit card users. But there are hardly any retail stores that offer cash only option. I don't care how much the merchants pay on credit card fees as long as they don't past that on to me, the cash user. The problem is that there is no choice, unless they get rid of the anti competitive no surcharge rule (NSR).

If I use cash all the time and the stores do no pass on the credit card fee on to me, I could save 1-2% on all purchases.

So please let's just get rid of the NSR, so that credit card users can pay for what they want (credit card use), and cash users can get what they want, lower retail prices.


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## MikeT (Feb 16, 2010)

A few years ago I thought the same way, I was being punished for using cash! So I said if I can't beat em, join em! Get a points card/airmiles/cashback whatever, and use it for every friggin purchase including my two dollar coffee or my 1 dollar slurpee. And never pay one red cent in interest by paying it off in full every month! That is how to win this game, and unfortunately it is the only way.


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## slacker (Mar 8, 2010)

@MikeT: Indeed, on an individual level that's pretty much what I do nowadays. But from a public good perspective, it's hardly ideal to have 3-5% of every retail transaction siphoned off for no good reason.

I think most Canadians are not aware of how much their retail prices have been inflated due to cost merchants have to pay to credit card companies. Some naive "free market" posters will say "well no one is forcing merchants to subscribe to the credit card services", but free market only works when the market is truely free and competitive. Under a oligopoly situation, VISA and MasterCard has no incentive to compete against one another to lower fees.

So add credit card no surcharge rule to my soap box. (the other being brokerage forex fees) They are both insidious in that consumers cannot easily detect what and how much they're paying.


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## the-royal-mail (Dec 11, 2009)

I agree, but only to a point. Every week, I withdraw $100 in cash from my bank's ATM. This cash is for all the small sub-$20 purchases I make in the course of a week. If I go to a restaurant I want to dine and dash and not frig around waiting in line behind a bunch of other people paying with debit and forgetting passwords and such. Many times I have approached a store with no cash in my wallet, only to learn their debit machine was down. If I'm buying a coffee for $2, cash is (and should be king). It's good for the high volume of small purchases, otherwise (if you use debit) you'll be shelling out lots of money in fees or having to pay for a higher package. And using a cc to buy a $2 coffee is silly. Besides that it wastes time and allows more opportunities for skimming. Leave the CCs for the larger purchases and use debit as an ATM key.


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## MikeT (Feb 16, 2010)

Ya, fair enough. How about loading my Starbucks card with my credit card, then using the Starbucks card daily? 

Actually Starbucks is pretty good at it, even using a credit card they don't ask me for a signature anymore. I've noticed this elsewhere as well, there must be some rule about skipping the signature on purchases under a certain dollar amount or something.


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