Convenience Fees
OVERVIEW
Credit/debit card payments are very costly to accept (see Interchange section). On average, it costs the State $1.50 in processing fees for a $100 credit/debit card payment, and only $.33 for a paper check payment. Credit/debit card fees are high because of 1) the nature of the real-time, guaranteed payment process; 2) the cost of fraud in the industry; and 3) the increasing use of rewards-cards. Visa/MasterCard charge higher interchange fees to merchants for processing these cards, so that the card issuers can in-turn provide the cardholder with "rewards".
There is labor savings to an agency when payments are moved from a point of sale location to an automated payment channel (i.e. paper lockbox or electronic lockbox - aka epayments). However, if the agencies absorb all of the credit/debit card fees, the savings will be lost.
In addition, e-check transactions (internet-initiated ACH debits) are not subject to the high credit/debit card processing fees.
The current convenience fee rules for the credit/debit card companies are here:
Current Convenience Fee Rules by Card Brand
STATEWIDE CONVENIENCE FEE POLICIES
State agencies must minimize the convenience fees charged to the Payer in all circumstances. Unless otherwise authorized by law, agencies may only include the amount of the credit-debit card processing fees (i.e. interchange and association fees) as the convenience fee. All convenience fees must be approved by the State Controller's Office.
Agencies must never violate the convenience fee rules established by the card brands (see link above).
Where an agency has both low-dollar fixed payments (< $200), and high-dollar variable payments (i.e. $200 - $10,000), in order to comply with the Visa convenience fee rules, AND to minimize fees to e-check Payers, the agency should establish two payment applications, and utilize a different convenience fee structure for each. For the low-dollar application, the agency should accept all payment methods, and charge a flat convenience fee based on the estimated total credit-debit card processing fees/total number of payments. For the high-dollar variable application, the agency should only accept e-checks and should not assess a convenience fee.
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