Credit and debit card fees, and sales taxes

I'll admit... I don't know all the facts. So don't quote me (but feel free to correct me) Note: italic items below have been edited for accuracy

It has now become commonplace for merchants to add "processing fees" to card purchases. I think this represents a an unfair claim, and may sometimes cross the line into being illegal.
 

As I understand it:

- It is illegal for merchants to charge  additional processing fees on debit cards. They can do it on credit cards. (Many merchants don't make the distinction).
- Merchants don't get charged fees on debit cards. If they collect the fee on all cards, they are collecting money to reimburse a "fee" they were never charged. 
- It doesn't matter if the debit card is run as a credit purchase. They still are not supposed to charge any processing fees.
- Actual credit card processing fees can range from 1.4% to 3.5%, and it CAN be affected by the MERCHANT'S credit worthiness, volume, risk level, and credit coding. The consumer has no effect. 
- Many merchants charge 3% or more, regardless of the fees they actually pay. 
- Merchants are required by law to print these processing fees on the receipt, but most do not.

Related to this are tips.  In businesses where tipping is standard, the automated suggested tip calculations are jumped up pretty high. Most places now present options of 18%, 20%, or 22% (when the standard has always been 15%).  These tips should be charged on the amount of the goods or services, but those amounts are calculated on top of the total INCLUDING applicable taxes.  Why are we tipping on the taxes above and beyond the service being provided?  
 

My state taxes are 4%, but the total tax at the register is 9.75% including state and local taxes.  This could theoretically mean a purchase first gets taxed 9.75%, then a 20% tip is added (including tip on the tax), then a 3% processing fee is added (including fee on both the tax and the tip)

Add them together, and that's a whopping 35.65%. That's awful.

Meanwhile, the merchants are trying to buy product, and their purchases are being subjected to similar fees on the back end before the price even hits my register, which just contributes to the inflationary explosion.

I've started to push back on merchants and ask why they are charging the processing fees on debit card purchases.  Every one I have asked says they don't make a distinction, and don't seem to know there are laws against it.

I don't think the problem is actually the merchants fault, or the bureaucrats.  It's ignorance on the part of the consumers. We need to educate ourselves a bit more.  
 

Im sure I've gotten some of this wrong. Feel free to set me straight. My point isn't to argue the basic math, it's to begin a conversation about how the process is messed up.  Hopefully if we can gain a little awareness, we can begin to make some changes. 

As always the fee legality question is complex. As you can see from the screen shot you have response before you asked the question.

In reply to SV reX :

One thing to add, some of the companies that add tip are not subject to tipping laws. Which is really odd, since those laws allow for less than min wage. 
 

And I hate stores that you do the work to even have a tip line. No service was even provided. So we are careful to zero that out. 

In reply to Rons :

Your screenshot is specifically about credit card purchases, not debit card

As I understand it, when CC fees are allowed the amount may be locally determined, but the Federal government says you can't charge fees on debit cards. 

In reply to alfadriver :

I'm pretty convinced some of those companies are not sharing those tip amounts with their employees, but that's a different gripe. 

This is slightly off topic but in general in the US is it easy to just tap a debit or card to pay at retailers?

My understanding (from many years ago) was that the credit card company agreement signed with the merchant forbid the merchant from charging an additional processing fee.
 

That's why you would see signs advertising a discount for cash. It was a way to get around the restriction by discounting for cash, as opposed to charging extra for using a card. 

In reply to Floating Doc (Forum Supporter) :

Yeah, things sure have changed.   But you are adding another issue...

There are now apps which offer users discounts.  In order to make those discounts work, the creators of the apps bring them to merchants and first suggest the merchant raise prices across the board- typically suggesting 4%.  Then when users of the app get a discount, the price is discounted back to the original price.

As for the rest of us who don't use the app, a big FU.

A large portion of my customer base pays via credit cards. I automatically add 3% to every invoice. The percentage has nothing to do with creditworthiness and everything to do with the amount processed.

Why should I pay for your convenience?

By the same token, I usually pay cash at small retailers and restaurants. I also always tip in cash, frequently placed in the servers hand instead of tossed on the table. 

Toyman! said:

A large portion of my customer base pays via credit cards. I automatically add 3% to every invoice. The percentage has nothing to do with creditworthiness and everything to do with the amount processed.

Why should I pay for your convenience?

By the same token, I usually pay cash at small retailers and restaurants. I also always tip in cash, frequently placed in the servers hand instead of tossed on the table. 

I have no problem with a merchant passing on the cost of running the business. I've been a business owner, I know that you're not supposed to absorb operating expenses yourself. That's a recipe for failure, and I hope I wasn't implying otherwise. That wasn't my intention.

As for tipping, I have the same policy. Although I make most purchases with a card, I try to pay tips in cash, although I don't always attempt to hand it to the server. That sounds like a good idea.
 

Wait, tips arent automatically added to your dining out experience? I've notice that a lot of places in the DC area automatically add a 18% tip to the check. Which is interesting, just increase the amount of your products and pay better wages. I've almost stopped tipping completely.

In reply to yupididit :

They are in some places. That's the point. 

Here in California if you go to the gas station there is a price for cash and 10-20 cents more a gallon for "credit" ,  I assume that is a Credit or a Debit card.

But in the grocery store it's the same price cash or credit/debit.

 I  rarely go to places that I need to tip , but I think it's a bad policy , Pay you workers a normal wage and do not put the guilt trip on my because they do not make enough.

waiting for McDonalds to try and sneak a "tip" to the bill.

In reply to yupididit :

I've only seen that for parties of 6 or more.

And yes, tip should absolutely be calculated before discounts and taxes.

Toyman! said:

 

Why should I pay for your convenience?

The historical answer to that question is "Because you want the business".

For over 50 years merchants absorbed this cost (and passed it on to all customers) because it was a known fact that their sales increased significantly more than the cost of the fees when they could offer their product to people who were not carrying cash. 
 

This is a reversal of what has happened for 50 years, and those "fees" have already been absorbed once into the sales price. 
 

In truth, it's not for my convenience. It's for your bottom line. Would you seriously want to try to run your business as a cash only business?
 

But I understand how that conversation has been turned around. 

In reply to Toyman! :

You are correct that volume is an enormous part of the credit card processing fee, but credit worthiness is also part of it.  So is your personal credit worthiness (whether you like it or not).

There are many factors. 

I'm actually working on documentation for this now. The site doesn't seem to differentiate between CC and Debit. 

https://www.versapay.com/lp/netsuitepay-pricing

In reply to z31maniac :

There's lots of confusion about them. There are also lots of laws (many of which merchants ignore)
 

We've treated CC and Debit cards like they are the same. They are not. 

Generally, there appears to be a distinction between convenience fees and surcharges. 
 

A convenience fee is something out of the ordinary. If most of your payments are online, you can charge a convenience fee for taking a payment over the phone.

A surcharge is a reimbursement for fees incurred. It has to be specific, and can't exceed the actual cost incurred, or 4% (whichever is less).  So, you can charge CC fees, but if your actual processing fee is 2.5%, you can't charge 3%.  
 

Im pretty sure the Debit card issue would fall under surcharge.  If no fees are being charged, then you can't charge the customer. 
 

The charge has to be itemized and identified on the receipt. 
 

The rules do vary by state (for example, there are a few states that do not allow surcharges at all). 
 

Im not a lawyer.  

I am just sitting here wondering why someone would use a debit card vs a credit card.  To me, the security and purchase protection is worth the extra spend and if you are in a 5% cash back category, its a net win to use plastic.  

When dealing with smaller guys on big purchased I always ask if they do discounts for paper money.  Most do.  Sometimes as much as 25%.  

I tip good for good service - always 20-25%, and I dont tip at all if the service sucks or you did't actually do anything.  

In reply to 93gsxturbo :

Because some people can't get credit cards. 
 

And in my case, because I've started paying attention to this issue. I have the money in the bank, I'm ready to pay for it, and I don't want to be charged the CC processing fees.

93gsxturbo said:

When dealing with smaller guys on big purchased I always ask if they do discounts for paper money.  Most do.  Sometimes as much as 25%.   

A 25% discount is because they're cheating on their taxes.

In reply to mfennell :

That's absolutely true. 
 

I had a merchant recently offer to charge me $0 in sales tax if I would pay with cash. It was a $1000 purchase. I paid with CC. 

In reply to 93gsxturbo :

Your question makes me wonder...

How does Visa give 5% cash back if their total processing fee is only 2.5%?

In reply to SV reX :

They want you making payments on your statement, not paying it off every month. I know people who mention the cash back and are making monthly payments. They're where Visa makes their profit. The cash back is just an incentive to get you to spend more.