Passing On Credit Card Fees - Do Or Don't?
Passing On Credit Card Fees - Do Or Don't?
Imagine going to your favorite restaurant or store one day and seeing a new two to three percent surcharge on your bill? When you ask, they inform you of a new policy that calls for passing credit card merchant fees on to the customer. How would you feel?
Up until January of 2013, this was an unlikely hypothetical situation. These “swipe fees” vary based on the type of card and other factors, but typically range from one to three percent of the bill. They are intended to cover the credit card companies' costs of doing business. Credit Cards had long included a clause in their contracts, prohibiting vendors from passing these fees on to consumers.
Things changed, however, when retailers file a anti-trust lawsuit charging that credit card companies were “price fixing”. After several years of back and forth, a settlement was reached that resulted in merchants being allowed to pass the swipe fees on to consumers. But, would the merchants actually begin to pass them on? “Big Box” merchants like Wal-Mart and Home Depot quickly announced they would not be passing them on. Would smaller merchants, the ones most likely impacted by swipe fees, begin to pass them on?
Most mental health and wellness private practices are small business with slim profit margins. Paying a two to three percent fee on revenue is a significant consideration for us. Up until recent years, many in our field didn't even consider accepting credit cards due to the plethora of additional fees involved in merchant accounts. With the advent of products like Square*, monthly minimums, charges, and bulky equipment went away. Further, more clients than ever are using FSA and HSA cards to pay for services. This has made accepting credit cards the default choice. With the settlement, we are now faced with deciding whether to continue to eat those fees or to pass them on to clients.
While I understand the frustration of absorbing these fees, I personally don't recommend passing them on since:
- It's a cost of doing business and
- I don't think it's a good business practice (it's a net negative as I explain below).
First off, you receive several things for those swipe fees:
- Quick and easy payment. The money is often deposited in your account within two to three business days.
- No potential bounced check. (While there is potential for “charge backs”, in my experience, they are extremely rare in our business).
- No trips to the bank.
- Increased revenues through a more full schedule. This is a result of a reduction in cancellations and increase in scheduling due to clients having payment flexibility. Not only can they “pay for it next month”, but it can be much more convenient for them to use their Health Savings Account (HSA) and Flexible Spending Account (FSA) cards.
- The opportunity to establish an agreement with clients to keep a "card on file" to take care of charges automatically.
On the flip side, there is a significant potential negative to passing these fees on to clients. Since most merchants have decided against passing these fees on, clients may have a negative impression of anyone who does. Do you want to be the only business that passes these fees on to your clients? Especially with the only benefit being a slight increase in revenues? (It's important to note here that there are some small geographic pockets where this appears to be a common practice. Obviously such a policy would be more accepted there).
In my opinion, the potential negatives of passing those fees on greatly outweigh the potential positives. In the end, if you don't want to pay these fees, you always have the option of not taking credit cards. In most cases, however, I believe the return on investment in taking them is a strong, positive one.
If, after reading this, you're still considering passing these fees on, there are other considerations to consider. First, passing the fees on is still illegal in several states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas ** See Update Below). Secondly, there are potential ethical considerations. For more details on those issues, I encourage you to read Roy Huggins article, Passing Credit Card Fees On To Clients: Is It Ethical, Legal or Good Business Practice?
Update 3/31/2017 Two states (CA, FL) have had their laws struck down in courts. It's also been challenged in NY. My understanding is that the cases in CA and FL are still under appeal, however. So the laws themselves are still on the books, but cannot be enforced due to the court rulings. However, a future court ruling might change all of that. if you do pass on the charges in those states, be prepared for the possibility that things may change again.
The NY case actually made it to the U.S. Supreme Court which ruled in March 2017 that the laws, as written, violate free speech. They did not strike down the NY law, instead sending it back to the state to determine how to continue. I'm guessing this will lead to revision of the wording in the statues, leaving the spirit of the law in place. Something to keep an eye on, especially in those states. (Source: LA Times)
* Note that we use and recommend Square. If you sign up via our link above, we will both receive free processing on $1000 in charges within 180 days.
Still have questions about the ins and outs of credit cards or other business questions? Consider booking an affordable 20 minute consult.
Rob Reinhardt, LPC, PA
Rob is a Licensed Professional Counselor in private practice and
owner of Tame Your Practice, which provides comprehensive
consulting to mental health and wellness professionals.
©2017 Rob Reinhardt, LPC, PA