You were the guru who asnwered this question I found in the archives, and we are looking at the exact same situation today. But for the life of me I don't understand your answer.

:snip:

Question: When requested by a customer, we allow customers to make loan payments by charging the payment to their credit card. Sometimes, this is only for a matter of convenience for the customer and, other times, it may be their only way to make payment on a past due loan. We would like to pass on to the customer a fee for using this method of payment. Are there any regulatory concerns I should review and/or disclosure requirements for this type of fee?

Answer: Your merchant agreement will most likely prevent you from assessing an additional fee for the use of a credit card. While you are allowed to offer a discount for cash, charging a surcharge for the use of a credit card results in a finance charge. You can read the official staff commentary at 226.4(b)(9) for a further explanation.

:snip:


I have looked at the commentary you refer to, but cannot see how it addresses the users question. The best I can figure from your reference is that since offering a discount is not a FC, then the opposite can be assumed that if you do charge a fee for payment by a CC then it is a FC.

Read your Mastercard or Visa Merchants Agreement and Operating Rules, depending on for which one you are acting as a merchant. When you accept a card card for a payment, you are acting as a merchant. As a merchant, you are forbidden to apply a surcharge due to the fact that the customer used a credit card. The surcharge would be a finance charge and would have to be communicated to the card holding bank to be added to the finance charge on the next credit card statement. There is no way to do this, so VISA and Mastercard prohibit the practice.

Thank you.

But what about 226.10(e) which prohibits a fee for payments unless the payment method "involves an expedited service by a customer service representative."

Also, when looking at what you state for your opinion, I don't see where it says that a surcharge would be a finance charge that needs reported back to the CC company.


Reg Z
226.4(b)(9) Discounts for the purpose of inducing payment by a means other than the use of credit.

Commentary:

Paragraph 4(b)(9).
1. Discounts for payment by other than credit. The discounts to induce payment by other than credit mentioned in §226.4(b)(9) include, for example, the following situation:
• The seller of land offers individual tracts for $10,000 each. If the purchaser pays cash, the price is $9,000, but if the purchaser finances the tract with the seller the price is $10,000. The $1,000 difference is a finance charge for those who buy the tracts on credit.
2. Exception for cash discounts. Discounts offered to induce consumers to pay for property or services by cash, check, or other means not involving the use of either an open-end credit plan or a credit card (whether open-end or closed-end credit is extended on the card) may be excluded from the finance charge under section 167(b) of the Act (as amended by Pub. L. 97–25, July 27, 1981). The discount may be in whatever amount the seller desires, either as a percentage of the regular price (as defined in section 103(z) of the Act, as amended) or a dollar amount. This provision applies only to transactions involving an open-end credit plan or a credit card. The merchant must offer the discount to prospective buyers whether or not they are cardholders or members of the open-end credit plan. The merchant may, however, make other distinctions. For example:
• The merchant may limit the discount to payment by cash, and not offer it for payment by check or by use of a debit card.
• The merchant may establish a discount plan that allows a 15% discount for payment by cash, a 10% discount for payment by check, and a 5% discount for payment by a particular credit card. None of these discounts is a finance charge.
Section 171(c) of the Act excludes section 167(b) discounts from treatment as a finance charge or other charge for credit under any state usury or disclosure laws.
3. Determination of the regular price. The regular price is critical in determining whether the difference between the price charged to cash customers and credit customers is a discount or a surcharge, as these terms are defined in amended section 103 of the Act. The regular price is defined in section 103 of the Act as—
. . . the tag or posted price charged for the property or service if a single price is tagged or posted, or the price charged for the property or service when payment is made by use of an open-end credit account or a credit card if either (1) no price is tagged or posted, or (2) two prices are tagged or posted. . . .
For example, in the sale of motor vehicle fuel, the tagged or posted price is the price displayed at the pump. As a result, the higher price (the open-end credit or credit card price) must be displayed at the pump, either alone or along with the cash price. Service station operators may designate separate pumps or separate islands as being for either cash or credit purchases and display only the appropriate prices at the various pumps. If a pump is capable of displaying on its meter either a cash or a credit price depending upon the consumer's means of payment, both the cash price and the credit price must be displayed at the pump. A service station operator may display the cash price of fuel by itself on a curb sign, as long as the sign clearly indicates that the price is limited to cash purchases.

You are quoting discounts for payment in cash. That is not the same as charging a surcharge for using a credit card. I'm not sure what 226.10(e) has to do with your original question.

Did you read your merchant rules. Any other regulatory citation really is moot.

Yes, I read our merchant rules, and it says we cannot charge a fee unless we charge that same fee for like services, meaning, if we want to charge for taking a payment, we have to charge all payment soruces, cash, check, internal transfer, etc.

The reason I am quoting 226.4(b)(9) is because that is what you used to answer the original question:

Answer: Your merchant agreement will most likely prevent you from assessing an additional fee for the use of a credit card. While you are allowed to offer a discount for cash, charging a surcharge for the use of a credit card results in a finance charge. You can read the official staff commentary at 226.4(b)(9) for a further explanation.

The reasosn I site 226.10(e) is because it contradicts what you say. It says you can charge a fee for payments when it is to "expedite" the payment.

I am just trying to find where charging the fee for a payment is a FC in 226.4(b)(9) like you said.

FWIW I agree with Randy's assessment.

Selling Price - $50

Cash Price - $45 (10% discount offered for cash, not prohibited)

Credit Card Price - $55 (10% surcharge for using a credit card, prohibited)

The payment I am referring to is, we want to start accepting CC or DC to make a payment over the phone, but would like to charge a fee for that service. (Whichi is what the original poster asked)

Like I said above, our merchant agreement prohibits any surcharge with a transaction, unless the fee is imposed on all like transactions regardless of form of payment. So we would have to charge a fee for internal transfers, checks, etc.

226.10(e) only applies to credit card payments not other loan payments the bank may allow the customer to use their credit card for.

(e) Limitations on fees related to method of payment. For credit card accounts under an open-end (not home-secured) consumer credit plan, a creditor may not impose a separate fee to allow consumers to make a payment by any method, such as mail, electronic, or telephone payments, unless such payment method involves an expedited service by a customer service representative of the creditor.

Thanks Dan, I see that it is referring to just CC payments.

But I still don't see where it is prohibited for other payments on all types of loans and where it says we would have to contact the CC issuer to report it as a FC and Randy said in his response.

The nearest I can see that requirement would be in 226.4(b)(2)if that is what "Transaction, Activity" means?

(2) Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature.

The original Q&A referenced charging for taking credit card payments for loan payments as a matter of convienence for the customer. You can't do that.

If you are going to allow me to make my payment in cash or check at the teller's window with no "surcharge" but you are going to charge me an additional fee (surcharge) for paying with my credit card then you have a problem. Not only are you violating your merchant agreement you are charging me a fee for a credit transaction, and most likely you haven't contracted for that fee in the loan agreement. 226.10(e) gives a special exemption for expedited payments to the credit card account to avoid additional charges but the exemption does not apply to using the credit card as a payment source to make other payments.

Where you will run into other problems is that one loan officer that will consistently waive the fee to satisfy their "good customers" or to get that loan off their past due list.

OK, maybe I am not making myself clear. I am going to try and make my questions clear as can be. (and I know these are black letters on a white background where you cannot catch the tone of my question. I am asking this with all respect as I can, not being sarcastic or argumentative)

I stated in my orignal post:


Meaning, we are wanting to do the same thing. Not sure how it came across that we were wanting to do anything different than what was originally posted.

Randy stated:



This commentary says nothing about what he claims it does, so I asked for clarification. Thinking he may correct his post and site the reg where is does state what he claims. What he quoted references cash discounts.



Please help me understrand why not and what prohibits this.



This is a common practice (fee) in a lot of banks and CU. Anything you can do yourself,(Teller window, ATM, Online Banking, Auto Phone Teller) no charge, but if a phone center person helps you (transfer money, make payment, etc) then you are charged a "phone Ctr charge" "Serv Ctr Fee" "Phone tran Fee" (for lack of better terms).



I agree a "surcharge" for taking a payment is a violation of the merchant agreement, but it is clear that if the fee is charged for all like transaction (ie a "Phone Charge" for all payments, withdrawl, transfers, etc) then it is not a violation.



Again, if it is a "Phone Transaction Fee" charged for all Phone Transactions, how is this a contract violation? Now granted we don't currently have this fee, and if we were to start charging it we would send out a New Fee schedule before charging this fee.

I fail to see how this is implied. It does not reference source of payment.





How is this different from a teller waiving a Cashier Check fee or a check printing fee? Or an officer waiving a Origination fee?

Again, I apologize for the size of this reply, but I am hoping to help me and others who may also not understand. Or maybe I am the only one who can't rap my head around this.

Thanks

I think we are going in two directions. But:

The original question did not imply a call center charge. It simply implied charging a fee for allowing a customer to make a loan payment using their credit card.

226.10(e) is saying if the credit card company charges the credit card account a surcharge for processing an expedited payment to the account that surcharge is not a finance charge. That's all it exempts. If you charge a "transaction fee" for using the card (as a payment source) to make a loan payment then it is a finance charge under Reg Z unless you charge the same charge for all similar services not tied to a credit account.

From the section you posted:

3. Determination of the regular price. The regular price is critical in determining whether the difference between the price charged to cash customers and credit customers is a discount or a surcharge, as these terms are defined in amended section 103 of the Act. The regular price is defined in section 103 of the Act as—

If the regular price of my payment is $500 and you charge me $510 for using a credit card and only $500 for paying cash then you are charging me a surcharge for using the credit card.

What you are implying, or at least to me you are, you want to pick and choose which "payment source" you apply this surcharge to. And what's the difference you asked about waiving the fee. How do you justify that every cash or check payment processed doesn't have a processing fee but every credit card payment does.


You cannot apply the exception in 226.10(e)for processing an expedited payment to the credit card account to using the credit card as a payment source, vs a check or cash, to make another payment on the account.


As I said earlier if you are going to charge this "processing fee" regardless how the payment is paid then you should be OK, but as mentioned above if the cash and check payments are consistently having the processing fee waived then you are looking at potential problems with your examiners.

Correct, the original question did not imply the phone scenerio, and I am only referring to a phone scenerio, not in branch. For that I was not clear.



It would be charged for all phone generated request. (In theory, you know as well as I do, someone is going to wave that fee sometimes.)

Far as paying with a Credit Card, I am not implying that Bank A customer calls into make a payment on Bank A CC account using the same card to make that payment. I am implying, Bank A customer calls into make a payment on their Bank A CC (or Car Loan or whatever account) and wants to charge it to Bank Bs card.



Not what I was trying to imply at all, we would charge that fee to all sources not just a CC or DC. Grant it, most request to pay on the phone are going to be a CC or DC, but it could be from their Checking or Savings.

Thanks for your patience with me on this.

You will always have the exception. The problem begins though when the exception becomes the rule.

Somehow I think we were agreeing charging the processing fee to all payments processed just trying to get there differently because of the reference to 226.10(e).

Just as a ending thought though.


As I've seen the expedited payment fees they appear as:


Payment: - $200.00

Expedited Payment fee: +$5.00.


The expedited payment fee is being charged to the credit card account that is having the payment applied. It is not being charged to the "payment source" account. At least all the samples I have seen were that way.



I think this is where the confusion may lie.

Reminds me of my days at Household Bank. Customer would come into the lending side, ask for an advance off his LOC. Then he would take the advance over to the teller line and make a payment on the same LOC.

Not what I am suggesting we do here.

You might want to read your merchant agreement in detail. If you are accepting VISA Credit Card payments for payments on your own loans, you are in violation of the merchant agreement:

5.2.F Prohibitions

A Merchant must not:

Effective October 4, 2008, accept a Visa Consumer Credit Card or Commercial Visa Product, issued by a U.S. Issuer, to collect or refinance an existing debt

I will check that, but how can that be, when you read daily offers to move your debt (Balance Transfers) onto another card?



Edited to add "Balance Transfers"

That is the issuer that is offering that - not when you are acting as a merchant.

I'm resurrecting this old thread in light of what some merchants are doing in our area. At some stores, if you pay with a credit card, they are adding a fee. The clerk tells the customer that a fee will be added for paying with a credit card.

Isn't this adding a finance charge to the purchase and therefore against MC & Visa rules?

Whether or not it's adding a finance charge (IMO it is) it is against current MC and VISA rules. It is also against the laws of several states.

The cardholders should complain to either VISA or Mastercard. They can offer a discount for cash, but not visa-versa.

thanks. I'll start spreading the news