I wrote two years ago about whether a convenience fee assessed to a consumer for use of a debit card or credit card in payment is permissible, or perhaps a finance charge. See Back to Basics, Continued—Is a Charge Assessed to the Consumer for Use of a Debit Card a Finance Charge? That blog focused on Alabama. 

The states in the USA have a variety of approaches to addressing this question.

All of the states that I have reviewed have no restriction on the use of a debit or credit card for payment provided that the use of the card is strictly voluntary at the discretion of the debtor. Then, the follow-up question is whether the convenience or processing fee assessed by the card processor may be passed along to the debtor or must it be absorbed by the creditor as a cost of doing business.

Here the states differ. 

Some states allow the recovery of the processing/convenience fee imposed by the card processor from the debtor. However, only the actual fee may be recovered. That is, the creditor may not mark-up the fee to make a profit. And, these states seem to mandate that the creditor must offer alternative means of payment—cash, check or money orders—where the debtor may make a payment without incurring a fee at all.

Other states prohibit the recovery of the fee from the debtor. In such jurisdictions, the fee imposed by a card processor must be absorbed by the creditor as the cost of doing business.

Finally, in other jurisdictions, the law is not entirely clear. Accordingly, an analysis as to whether a processing/convenience fee is or is not a “finance charge” must be undertaken. And, if that does not yield a definitive answer, a call to the regulator usually does.

Please Note: This is the two hundred-fourteenth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.