Posted in Business & Corporate Law

Eleven states, including Florida, have laws that prohibit businesses from imposing consumers with surcharges on credit card transactions.  But what type of businesses are subject to this prohibition?  All businesses?  Only merchants and retailers?  Currently, the concept of charging surcharge or convenience fees for credit card usage by service business is not clearly addressed in the applicable statute.  Florida Statute Section 501.0117(1) states that a “seller or lessor in a sales or lease transaction may not impose a surcharge on the buyer or lessee for electing to use a credit card in lieu of payment of cash, check, or similar means, if the seller or lessor accepts payment by credit card.”  Moreover, a surcharge is defined as any additional amount imposed at the time of a sale or lease transaction by the seller or lessor that increases the charge to the buyer or lessee for the privilege of using a credit card to make payment.  Id.

The question then becomes (1) whether an owner of a service business is considered a “seller” and/or (2) whether the payment for services is considered a “sales transaction” under Florida law.  The more argumentative issue lies within the first question.  Although “seller” is not defined in Chapter 501 of the Florida Statutes, Black’s Law Dictionary defines “seller” as “generally, a person who sells anything; the transferor of property in a contract of sale.”  Thus, it would be hard to argue using the Black’s Law Dictionary definition that a service business owner is not a “seller,” because an owner of a service business does in fact sell a service to his or her client.

Important to note, however, is that on Visa’s website, Visa defines a payment card surcharge as “a fee that a retailer adds to the cost of a purchase when a customer uses a payment card.”[1]  Black’s Law Dictionary defines retailer as “A person or entity engaged in the business of selling personal property to the public or to consumers, as opposed to selling to those who intend to resell the items.”  Here, one could argue that a service business may impose a surcharge because they are not considered a retailer that sells personal property, but a business that sells a service.  Additionally, both Visa and MasterCard focus on a merchant’s ability to apply a surcharge.[2]  A “merchant” is defined in Black’s Law Dictionary as “one whose business is buying and selling goods for profit.”  A service business does not buy or sell goods, thus another argument exists that surcharges do not apply.

Another issue is whether the payment for services is considered a “sales transaction.”  Black’s Law Dictionary defines “sale” as “the transfer of property or title for a price.  See UCC § 2–106(1).”  Other than from a UCC standpoint, a “sale” is defined as “the act of selling something: the exchange of goods, services, or property for money.”[3]  Moreover, Black’s Law Dictionary defines “transaction” as “the act or an instance of conducting business or other dealings; esp., the formation, performance, or discharge of a contract.”  Although it would be hard to argue that the exchange of a business’s services for money is not considered a “sales transaction,” the ambiguity in the statute is open to interpretation.

There does not appear to be a definite answer, and the interpretation of the statute can be argued both ways.  On one hand, one may argue that a service business owner falls within the broad definition of a “seller” because a service business falls within the realm of “anything.”  On the other hand, an argument can be made that credit card surcharges were intended to apply to retailers and/or merchants, not service businesses.  Additionally, although difficult to prove, an argument exists that the act of performing a service for money is not considered a “sales transaction.”  With such uncertainty and without much case law on the subject, it would be advantageous for service businesses to err on the side of caution and not impose surcharge fees to customers.

Another question to ask is whether a service business may impose a convenience fee on the client for payment of services when using a credit card.  Convenience fees, unlike service fees, are charges levied for the privilege of paying for a product or service using an alternative payment channel, or a payment method that is not standard for the merchant.  For example, Movie theaters usually sell tickets face-to-face in the box office.  However, if a movie theater gives customers the alternative option of paying by phone using a credit card, then that theater could charge a “convenience fee” for the privilege.  In essence, the customer is not paying for the privilege of using their credit card, but for the privilege of using the pay-by-phone option.

It appears to be safe to charge a convenience fee for credit card payments made by phone or online if these payment channels are outside of the business’s customary payment channel (i.e., in person).  With that being said, businesses should check with their credit card vendors to ensure that their credit card service agreement does not include a provision that limits or prohibits imposing a surcharge, convenience fee, or similar charge.  If this type of provision does exist, regardless of the legality of the fee, the business would be unable to charge fees due to contractual obligations.

As a final point, businesses are given flexibility to steer customers to lower cost payment methods.  For example, a 1% discount could be extended for using debit cards or cash.