{"id":18375,"date":"2022-09-16T17:10:06","date_gmt":"2022-09-17T00:10:06","guid":{"rendered":"https:\/\/www.rentecdirect.com\/blog\/?p=18375"},"modified":"2022-09-17T07:59:09","modified_gmt":"2022-09-17T14:59:09","slug":"what-to-know-about-charging-payment-processing-convenience-fees","status":"publish","type":"post","link":"https:\/\/www.rentecdirect.com\/blog\/what-to-know-about-charging-payment-processing-convenience-fees\/","title":{"rendered":"What to Know About Charging Payment Processing & Convenience Fees"},"content":{"rendered":"\n
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Whether residential or commercial real estate, landlords and property managers across the country benefit from being able to offer multiple payment options, additional services, and amenities to their tenants to differentiate them from their competition. On the flip side, some landlords choose to charge convenience fees on specific options as a way of reimbursing their costs or as a way to generate additional revenue while providing a needed service or amenity.<\/p>\n\n\n\n

In either case, before charging your tenants for convenience fees, surcharges, pass-through,, and direct billed services, it’s essential to be familiar with the pros and cons of those choices and the regulatory, compliance, and reporting requirements associated with these types of charges.<\/p>\n\n\n\n

Electronic Payment Processing Transaction Fees<\/h2>\n\n\n\n

Landlords want to offer tenants the best options for paying their rent and other charges conveniently. It’s one of the main factors of providing landlord software that tenants love<\/a>.<\/p>\n\n\n\n

To offer electronic rent payment options, landlords must open a merchant account with a payment processor who, in turn, will charge the landlord a processing fee for each transaction.<\/p>\n\n\n\n

Regarding tenant-based transactions, there are two types of merchant processing fees a property manager should expect when collecting rents: credit card processing fees and Automated Clearing House (ACH) transaction fees.<\/p>\n\n\n\n

Definition Corner<\/p>\n\n\n\n

ACH \u2013 Automated Clearing House<\/strong>: As the name suggests, these automated payments are scheduled and authorized by the person or organization requesting the withdrawal from a financial institution and processed in a batch. An ACH batch processes the exchange of electronic fund transactions between financial institutions.<\/p>

Due to the nature of batched and processed transactions, ACH transactions are not real-time settlement payments but instead rely on the timing of funding and are at the mercy of each financial institution’s processing time.<\/p><\/blockquote>\n\n\n\n

For more payment processing definitions, check out this helpful resource: Rental Real Estate Terms to Know About Payment Processing<\/strong><\/a><\/p>\n\n\n\n

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Let’s go over the five basic types of payment processing fees one might encounter in the rental real estate industry: <\/p>\n\n\n\n

1. Credit Card Processing Fees<\/h2>\n\n\n\n

Credit card processing fees are charged to a landlord for every incoming transaction. The cost is determined by the merchant provider’s relationship with the credit card processor and the type of credit or debit card used.<\/p>\n\n\n\n

What’s the difference between a convenience fee and a surcharge?<\/em><\/strong>
These terms are often used interchangeably. You’ll likely recognize that ‘convenience fee’ is most often used in property management software systems. Often in retail, the term ‘surcharge’ is used to mean reimbursement for the processing fee expense. Whereas ‘convenience fee’ would be a charge for the privilege of using a different payment method option (which may include a high enough fee that reimburses the expense as well).<\/p>\n\n\n\n

Can I charge my tenant a credit card convenience fee to offset my processing fee expense?<\/strong><\/em>
That depends on your state regulations. Most states allow you to charge a credit card convenience fee – but not all.<\/p>\n\n\n\n

According to a USA Today article<\/a>:<\/p>\n\n\n\n

“In some states, retailers can’t add surcharges or convenience fees. Here are the five states where it’s illegal: Colorado, Connecticut, Kansas, Maine and Massachusetts.<\/p>

While it’s illegal for businesses to charge credit card surcharge fees in these states, there are two things to note. In Maine, government entities can impose credit card surcharges. Additionally, all states are allowed to offer cash discounts to avoid these fees. That includes the above five states. Offering a cash discount may encourage more customers to pay with cash, and it can help both the business and the customer avoid additional fees.”<\/p><\/blockquote>\n\n\n\n

According to a LendingTree article<\/a>:<\/p>\n\n\n\n

“Ten states prohibit credit card surcharges and convenience fees: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. It is illegal for merchants to add any surcharges to credit card transactions or charge convenience fees to nontraditional payment methods in these states.”<\/p><\/blockquote>\n\n\n\n

One indicates a ten-state ban on convenience fees, and the other five states. Although these two articles are fairly current, after some research we found articles across the internet that were outdated. <\/p>\n\n\n\n

With conflicting and old referenced information, how can you be sure you are in compliance and are allowed to recoup your credit card processing fee or make an additional profit from the transaction? Additionally, because these articles are retailed focused, they don’t mention if the ban applies to collecting rent payments. You leave yourself vulnerable if you rely solely on internet articles, including this one.<\/p>\n\n\n\n

The best advice is to seek the advice of experts. Check with the real estate board and consumer affairs in your state to find out if you can charge a fee to your tenants and applicants to recover your costs for credit card processing.<\/p>\n\n\n\n

2. ACH Transaction Fees<\/h2>\n\n\n\n

ACH transaction fees are also charged per transaction to the landlord by the merchant service provider to pay for the ACH service. The technical aspect of how funds are routed from the tenants’ financial institution to yours is complex. The merchant service provider charges a fee for making that happen quickly and securely.<\/p>\n\n\n\n

ACH transaction fees are governed by different financial regulations than credit cards. Because the credit card network does not regulate ACH, you should be able to charge a convenience fee for the privilege of paying rent electronically. However, many tenants expect online payment options as a free amenity, and often tenants are more likely to pay rent on time when given an online opportunity, so weigh the pros and cons carefully if you wish to charge for the service.<\/p>\n\n\n\n

2. Property Management Transactions<\/h2>\n\n\n\n

In addition to collecting tenant-related payments by ACH, depending on the features provided by the property management software, landlords and property management companies can use ACH transaction processing to help with:<\/p>\n\n\n\n