- 27 Oct 2022
- 3 Minutes to read
Implementing a Convenience Fee
- Updated on 27 Oct 2022
- 3 Minutes to read
Current Regulations and Laws
Unlike many US states, there are currently no Canadian laws that prohibit merchants from passing transactions fees onto customers. However, both Visa and Mastercard (the card-brands) have regulations regarding these practices. All merchants accepting these card-brands inherently agree to their Merchant Operating Guidelines (MOG) and monetary penalties could be imposed by these card-brands for not abiding by their rules. It's also important to note that card-brands operate under unique legal entities in each country, and the rules of Visa Inc. (USA) will differ from the rules of Visa Canada Inc. When this document refers to Visa and Mastercard, it is referring to the Canadian entities.
Convenience Fee vs. Surcharging
First, it's important to differentiate between "surcharging" and having a "convenience fee". Surcharging is the practice of passing processing fees on to customers as a penalty for paying by credit card. Both Visa and Mastercard's rules generally prohibit merchants from engaging in any acceptance practice that discriminates against the use of a card-brand in favor of any other acceptance brand. A merchant may not directly or indirectly require any Visa or Mastercard cardholder to pay any fee in connection with a payment card transaction that would not be charged if another payment method was used. For example, some small restaurants and retailers require customers to pay "3% extra for credit cards". This is considered surcharging and is prohibited. Convenience fees on the other hand are considered a fee for providing a customers with an entirely new payment option from other payment options normally available. This usually applies to card-not-present transactions, where the payment method was previously not available to customers. The convenience fees is charged on all types of transactions available for this new payment method, and is charged to cover the costs of this new "convenience".
Current Mastercard Canada Regulations
Current Visa Canada Regulations
Visa's official Merchant Operating Guidelines state that all surcharging and convenience fees are prohibited in both card-present and card-not-present environments. However, there are many Canadian organizations including most Canadian universities and Canada Revenue Agency, who have implemented convenience fees by following Mastercard's guidelines. Visa has been absent in responding to calls for clarification on its position for these card-not-present practices, most likely not wanting to officially update its guidelines, while not wanting to lose processing volume to its main competitor, Mastercard. Understandably, this may deter merchants from implementing any "convenience fee" practices. As a processor, we cannot provide guarantees that Visa may not enforce its current official policies on such practices. Merchants must make a decision at their discretions on whether to implement the practice.