From a merchant's perspective, service fees and surcharges might seem like common sense. After all, they're being charged when they accept credit card payments. The typical credit card transaction results fee totaling an average of 3% of the purchase total, which can significantly impact the merchant's bottom line. A surcharge or service fee is the only way to make up the difference, right?
Well, that depends where you're doing business.
Surcharges in Canada
A surcharge is a charge—typically a percentage of the final purchase price— applied anytime a purchase is made with a credit card. In the U.S., surcharges are permitted on a federal level, but not all states allow them. In Canada, however, credit card surcharges are not permitted at all—for now.
However, that could be close to changing. A class action lawsuit filed in 2011 charged Visa, MasterCard, and Canada's largest banks with conspiracy to fix prices charged to Canadian merchants; the suit was settled, and Visa and MasterCard agreed to reduce the fees for five years, pay $19.5 million each, and permit Canadian merchants to tack surcharge fees onto payments made via credit card—with a surcharge cap in place.
For the time being, merchants are still forbidden to add a surcharge onto customer payments, but the fees will come into effect a year and a half after provincial courts approve the settlement.
Service Fees in Canada
That said, service fees are permitted in some cases. A service fee is a set amount that is added to a payment for the convenience of using an alternate payment channel or non-standard method of payment. In Canada, service fees are permitted for:
- Utilities and rent
- Taxes and fines
- Tuition and childcare
- Purchase made in "card not present" situations— online, over the phone, or via mail
With a percentage of every purchase paid for by a credit card going back to the credit card processing company, the credit card company, and the bank, the payee gets shorted. Merchants might be able to pass the cost along to their customers, but government entities and schools don't have that luxury. To recoup the expense related to the convenience of credit card use, these organizations can require a service fee.
The main rule behind service fees is transparency. The customer must be informed of the presence of the fee and its amount prior to the purchase, or it's not considered legal.
Credit card payments are complex, and the rules change from country to country. That's why Ivrnet is here to help. We're equipped to assist you with all the challenges that come along with making online or over the phone credit card payments, ensuring that you're working within the laws of your country and keeping your customers' data completely secure. Contact us today to learn more about what Ivrnet can do for you.