What's The Difference Between Convenience Fees And Surcharge Fees? And Are They Even Legal?

Let’s start with the “Surcharge Fee.” When using credit cards to process self-storage rent payments, an operator’s bank processes the transaction and charges the operator an interchange fee for the processing service. That cost can be passed along to the tenant as a surcharge to cover the cost to the operator for allowing payment through the ease of a credit card. It is important to note that a different system is used to process debit cards and therefore surcharge fees are NOT permitted for debit card transactions. 

When it comes to surcharge fees, operators are not permitted to profit from the surcharge fee. It is considered a “pass-through” fee to cover the cost of the interchange fee. Surcharges are typically a percentage of the transaction value. The permissibility of adding surcharges to credit card payments falls under the jurisdiction of the individual states. Each state has its own regulation as to whether surcharges can be imposed and if so, how much. If permitted, each state also addresses how the surcharge fee must be disclosed in advance to the customer. Some states have a surcharge fee cap up to 3%, while others cap the surcharge at 2%. Self-storage operators would need to look both at their state law and the rules of the specific credit card financial institution they are working with to determine their specific surcharge limits.

Most states now permit credit card surcharges. A few states do not, including California, Connecticut, Maine and Massachusetts. As an example, one state, New York, passed a law in 2023 which limited how surcharge fees could be used. Under NYS GBS §518 (General Business), the law limits credit card surcharges to the amount charged to the business by the credit card company and requires businesses to post before checkout: 1) the total price of an item or service inclusive of the credit card surcharge; or 2) a two-tiered pricing option, which requires the credit card price to be posted alongside the cash price.

A “Convenience Fee,” on the other hand, is a fee charged by an operator when it offers additional payment options to its customers. Such a convenience fee would cover the administrative costs and expenses for the technology needed or other third-party expenses incurred in offering such alternative payment options. Convenience fees are typically flat fees and are charged depending on the payment option used by the customer. 

For example, a customer paying its storage bill by credit card over the phone through the facility’s call center might incur a “convenience fee”. This convenience fee might be in addition to the “surcharge” that the operator charges for using a credit card to process the rent payment. But keep in mind that even if it is legal to charge both fees, many credit card companies (under their operational rules) prohibit charging both fees for the same transaction.

It is important to note that convenience fees can be charged only if the business offers at least one other standard payment option. For example, if payments are typically made via credit card, the convenience fee would only be charged if the customer had to pay by check or in person or via the phone. Again, convenience fees need to be clearly disclosed before they are charged so the customer understands that, in order to use this service, there will be an additional charge. Further, credit card companies also issue their own rules regarding the permissible use of convenience fees and those rules must be reviewed and followed.

Cash discounts apply when operators offer a reduction in the price for tenants who pay by cash, check or debit card since the operator avoids the expense of the interchange processing fee incurred when payment is made via credit card.  Cash discounts given to avoid credit card fees are legal but require specific disclosures (again there are different rules in each state). 

Although each state’s laws on this topic are different, they all have a common thread. If permitted by your state, your self-storage tenants must be informed about the fees. The fees should be contained both within your facility’s rental agreement and posted on your website and should comply with the specific notice requirements contained under the law. Compliance on this topic will avoid the risk of liability for state law violations and claims for deceptive business practices against your storage facility.

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Scott Zucker is a partner in the law firm of Weissmann Zucker Euster + Katz P.C. in Atlanta, GA. Scott specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. For more visit www.wzlegal.com. 

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This newsletter is for the purpose of providing general legal insight into the self-storage industry. It should not be substituted for the legal advice of your own attorney.