The Credit Card “Convenience Fee” is Convenient if you are a Public Entity

A California university recently notified students that a 2.75% processing fee would be imposed upon students paying tuition and boarding costs with a credit card. The Director of Student financial services told the LA Times that by shifting the card companies’ cost of processing from the university to the students, the university will save approximately $6.5 million.

Is this processing fee legal? Can my school district implement a processing fee, too?

The simple answer to both questions is YES.

California law prohibits the implementation of additional fees on a purchaser when the purchaser chooses to pay with a credit card, rather than with cash or a check. This law, however, does not apply to public entities, including school districts. Public entities are allowed to charge extra for using a credit card.

Civil Code section 1748.1(a) states:

No retailer in any sales, service, or lease transaction with a consumer may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means. A retailer may, however, offer discounts for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card, provided that the discount is offered to all prospective buyers.

The law defines “retailer” as used in the above-captioned section as “not mean[ing] [a] state, a county, city, city and county, or any other public agency.” (Civ. Code, § 1747.02(e).)

How much can a public entity charge?

The law has not set a specific rate at which a school district can charge for payment with a credit card. Public utilities in California, who are also permitted the use of convenience fees, are limited in that they can only “recover reasonable expenses incurred.” This is interpreted as meaning they can recover only the cost of processing the transaction, but no profits. We recommend school districts follow this guideline and implement a fee that does not exceed the cost of processing the credit transaction.

When would my school district impose an administration fee?

Examples include:

  • Retirees paying for health coverage
  • Payment for lunch fees
  • Developers payment of developer fees
  • Community college fees, including tuition and books

 

 

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