When I heard today about Verizon’s announcement that it will charge a $2 convenience fee for debit and credit card payments made online or by phone, my first reaction was one of outrage. I am a Verizon customer who pays online with plastic, and I don’t want to pay an extra $24 a year for the “privilege” of paying my bill.
But my second thought was, isn’t this illegal? Certainly Verizon has plenty of high-priced attorneys they can consult, so they must have decided that this fee is permissible. But it sounds an awful lot like a surcharge, and surcharges are generally prohibited by Visa and MasterCard, and illegal in ten states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.)
[Featured Products: Research and compare credit cards at Credit.com]
Digging into the issue a bit deeper, I found some nuances that make it even harder to determine exactly whether the fee is allowed. So while I am still uncertain of the final answer to my question, “Can they do that?”, I am fairly confident that it won’t fly with customers and we’ll eventually see it die like the Bank of American $5/month debit card fee. In the meantime, I think Verizon customers have some valid reasons to protest this fee, even beyond the basic argument that it’s ridiculous to pay to pay your cell phone bill.
Surcharges vs. Discounts vs. Convenience Fees
Visa’s rules generally prohibit “checkout” fees, but they do make an exception for certain online convenience payments provided merchants follow Visa’s rules which state, “The fee is being charged for a bona fide convenience of using an alternate payment channel outside of the merchant’s normal business practice.” The rules go on to say:
Must be disclosed to customers as a charge for alternate payment channel convenience
Is applied only to non face-to-face transactions (There is an exception – Please see Visa Tax Payment Program)
Must be a flat or fixed amount regardless of the amount of payment due
Is included as part of the total transaction
Cannot be added to recurring transactions
Is assessed by the merchant that provides goods and services to the cardholder and not by a third party
The customer must be given the opportunity to cancel prior to the completion of the transaction.”
[Consumer Resource: Mystified by your credit? Learn how it works and where you stand with Credit.com's Free Credit Report Card.]
The Merchant Council describes it this way: ”Surcharging customers for paying with a credit card is considered discrimination based on payment type. A convenience fee is a charge for offering customers another payment option that is separate and in addition to standard payment methods.”
Personally, I would argue that Verizon assessing this fee at this time would not qualify it as “an alternate payment channel outside of the merchant’s normal business practice,” but that will be up to Visa and MasterCard (and perhaps some attorneys who opt to challenge the fee) to decide.
MasterCard’s website states:
“A merchant is not permitted to require a MasterCard cardholder to pay a surcharge, any part of a merchant discount, or any contemporaneous finance charge in connection with a MasterCard card transaction. However, a merchant may provide a discount to its customers for cash payments provided that it is clearly posted. In certain instances a merchant may charge a convenience fee.” I haven’t been able to find the same detailed information about MasterCard’s rules, but presumably they are similar to Visa’s.
While American Express and Discover don’t generally prohibit surcharges, they do require merchants to treat their cards like other cards they accept. So if the merchant also accepts Visa or MasterCard cards and is not allowed to assess a surcharge, then the same would be true when customers pay with an Amex or Discover card.
Generally, the card companies – and state law – allow discounts for those who pay by cash or check. But if you’re a merchant and you want to go that route, you can’t just call a surcharge a cash discount. You actually have to offer a discount off the retail price for those who pay by cash or check. If Verizon did that, it would mean that customers who paid with online ACH withdrawal, or in person by check or cash, would actually pay less than they are paying now.
My sense is that the exceptions for convenience fees were created largely so government agencies (like your Department of Motor Vehicles) or utilities, which may not have traditionally accepted phone or online payments, could accept plastic. Many of these agencies can’t absorb the cost of the merchant swipe fee that they have to pay when customers use plastic.
The card companies really aren’t terribly fond of merchant’s attempts to pass along the merchant fee to cardholders, since it may discourage cardholders from using their credit or debit cards to pay bills or buy merchandise. If they allow Verizon to impose this fee, then what’s to stop any company that accepts credit card payments online or by phone from adding a convenience fee? Theoretically, at least, a store like Best Buy or an airline – both of which have physical and online presences – could impose a surcharge for online payments and call it a convenience fee. That’s why it’s so important for Verizon customers who are cardholders to stop this type of fee in its tracks.
How to Protest Verizon’s Surcharge
If you are a Verizon customer who wants to pay with a credit or debit card, and are annoyed or outraged by this fee, I suggest you do the following:
- Report a merchant violation. If you are a Visa cardholder, report Verizon’s fee to Visa on their merchant violation page. Report a MasterCard merchant violation here. I assume that Verizon got the go ahead to assess this fee from the company through which they process their credit card payments, and both Visa and MasterCard need to hear from cardholders if they don’t like it.
- Challenge illegal fees. I don’t know whether Verizon will try to impose this fee in the states where surcharges are clearly prohibited by law. In my state, Florida, for example, it doesn’t appear there are any loopholes for so-called convenience fees. f you live in one of the ten states that bar surcharges for card purchases, and Verizon tries to assess this fee (I don’t know yet whether they will) contact your state attorney general’s office. Report the fee and ask them if it is legal.
- Complain to Verizon, of course. Or better yet, go to one of their locations to make your card payment in person. Hopefully they’ll soon see it’s cheaper and more efficient to accept card payments online than to staff up to process in-person payments.
[Consumer Resource: Need to take control of your financial life? Take the first step and learn where you stand with Credit.com's Free Credit Report Card.]
And what NOT to do:
Don’t let Verizon push you into signing up for autopay where your payment is automatically deducted from your bank account or charged to your debit card. It’s very difficult to cancel those agreements on short notice, and if you have a surprisingly large bill because you went outside your normal pattern of use or there is a billing error, the money may be out of your account before you can stop the withdrawal. A credit card may be safer in that regard, since the funds aren’t directly debited from your account, but still, I believe you’re better off controlling access to your account.
Update: Verizon has announced that has cancelled the planned $2 convenience fee, citing customer feedback, as opposed to the legality of the fee. “At Verizon, we take great care to listen to our customers,” said Dan Mead, president and chief executive officer of Verizon Wireless, in a press release. ”Based on their input, we believe the best path forward is to encourage customers to take advantage of the best and most efficient options, eliminating the need to institute the fee at this time.”