Is It Legal for Merchants in California to Charge a Credit Card Processing Fee?

Published: 11th January 2012
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Credit cards offer a convenient way for consumers to make purchases, but they may not be the preferred method of payment for merchants. Merchants are required to pay a fee to a credit card company every time a customer uses a credit card to buy something from them. Most merchants do not mind paying credit card fees when their businesses are prospering, but in these tough economic times, many of them are starting to feel the pinch. As a way to reduce their losses, some businesses have decided to pass the responsibility of paying those fees to their customers by charging processing fees. However, charging processing fees is considered illegal in some states, one of which is California.

The processing fee that merchants have to pay to credit card companies is 2% of the transaction amount. If you purchase $100.00 worth of goods with a credit card, it costs the merchant about $2.00 in processing fees. For businesses that make hundreds or thousands of transactions every day, paying credit card processing fees can reduce their profits significantly. While some merchants in California choose to disregard the law by requiring their credit card-using customers to pay processing fees, others have found other ways to compensate for their losses.

Businesses that charge credit card processing fees are violating the California Civil Code Section 1748.1(a), which states that all retailers in the state are not allowed to add a surcharge to purchases that are made with credit cards, whether in sales, service, or other transactions. If you are charged a processing fee while purchasing something with a credit card in California, you can contact the merchant to ask for a refund of the fee. The merchant has up to 30 days to refund the processing fee, and you can file a lawsuit if it fails to do so. If the merchant is found guilty, it will have to pay you three times the professing fee, as well as all legal costs that are incurred while you are trying to get the refund.

You should also be wary of merchants that charge convenience fees. Convenience fees are basically fees that are charged for the convenience of using an alternate method of payment, and they can be legal or illegal, depending on certain circumstances. For instance, retailers that accept cash, checks, and credit cards are not allowed to charge convenience fees on credit card transactions. If they do so, it will mean that they are practicing payment method discrimination, since payment by credit cards in this case is not a bona fide convenience and the fees do not apply to the other methods of payment. On the other hand, utility companies that primarily receive payments via mail are allowed to charge convenience fees on credit card payments that are offered to their customers as a bona fide convenience. The definition of “convenience fees” varies from one credit card company to another. While VISA states that convenience fees are different from surcharges, MasterCard sees no distinction between the two.

There are a number of things that businesses in California can do to get around the state’s credit card processing fee law, and one of them is offering cash discounts. Merchants can offer a discount to customers who choose to use cash instead of credit cards to pay for their purchases. By encouraging more customers to pay with cash, they will be paying less processing fees to credit card companies, resulting in substantial savings. To offer cash discounts to their customers, they have to list the prices for cash and credit card payments separately, and show the cash prices as discounts instead of presenting the credit card prices as surcharges.

Another technique that businesses in California use to reduce their credit card processing fees is imposing a minimum purchase amount. This means that customers have to buy a certain dollar amount of goods in order to be allowed to make payments with credit cards. With this practice in place, the retailers will have the assurance that their credit card processing fees will not exceed the amounts of profit that they gain from small purchases. According to Californian law, merchants are not allowed to set the minimum purchase amount above $10.00.

Different types of credit cards have different rules regarding processing fees and convenience fees, and these rules can prevent merchants from charging credit card processing fees illegally. Visa and MasterCard forbid merchants from adding surcharges to purchases that are made with their credit cards. If you are charged a processing fee when you are using a Visa or MasterCard at a certain retailer, you can report the incident to the issuer of your credit card. Additionally, these two companies do not allow merchants to impose a minimum purchase requirement on transactions that are made with their cards. American Express forbids merchants from charging surcharges, unless they qualify as convenience fees, and it allows minimum purchase requirements under certain circumstances only.

Credit cards have gained importance as a payment method in recent years, and they are used on a regular basis by a large percentage of Americans. Those who use credit cards regularly prefer to shop in stores that offer credit cards as a payment option, and retailers that do not accept credit cards may lose customers to stores that do. Despite having to pay processing fees, most merchants continue to accept credit card payments. By doing so, they can provide a more convenient shopping experience, resulting in an increase in the number of customers as well as sales. However, for some merchants, the cost of paying processing fees may outweigh the benefit of accepting credit cards, and they have to take measures to discourage their customers from using credit cards, or use other means to reduce their processing fees.

If you are one of those who prefer to make payments with credit cards, you should make sure that you are not charged a processing fee every time you make a purchase. If you find that a merchant has added a processing fee to your purchase, contact the merchant or the issuer of your credit card.

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