What Fees Are Legal?
A Legal Minute With Scott Zucker
What Fees Are Legal?
By Scott I. Zucker, Esq.
The self storage industry is well known for its fees, be it invoice fees, late fees, overlock fees, inventory fees, lien fees or sale fees. But more and more, these types of fees have fallen under the scrutiny of consumers who claim that the fees are unreasonable or even illegal. Over the last decade, the national Self Storage Association, together with affiliated state Self Storage Associations, has taken a giant step to statutorily create late fee "safe-harbors" so that self-storage facilities can charge late fees arising from delinquent rent payments without the risk of consumer litigation. Most of these late fee laws have resulted in operators being able to charge a reasonable late fee for non-payment in the amount of $20 or 20% of the monthly rental rate, whichever is higher. Some states have gone higher with their legal approvals, some lower.
But the same scrutiny that was applied to late fees is being turned to other types of fees that are charged by self storage operators in conducting their business. The first arises from the charging of a convenience fee or a surcharge to customers who pay by credit card rather than by cash or check.
A convenience fee is generally considered a fee charged to a customer who opts for the convenience factor of paying by credit card. This fee is meant to supplement the cost of the merchant in having a credit card system itself (cost of hardware and software to manage a credit card payment system). A convenience fee is best charged as a flat fee and not one tied to the amount of the charge itself. Again, this convenience fee is being added to the customer's payment to cover the additional cost to the merchant for having the credit card system available to its customers for ease of payments.
A credit card "surcharge" is defined differently from a convenience fee. A surcharge is commonly seen as a way to cover the fee charged by the credit card company itself to process the charge. For example, if a tenant pays its rent using a Visa Credit card, that credit card company will charge the operator a fee (upwards of 3-4%) to "process the payment". Therefore, in order to avoid losing that 3-4% revenue, the operator will turn around and add a surcharge to that customer's payment to cover that expense. This additional charge is seen as a surcharge for the use of the credit card for payment. Under a settlement agreement reached in a large class action against a number of credit card companies, merchants can typically pass along a charge EQUAL to what they must pay the card processor, or up to four (4) percent.
There are a few states that still prohibit any surcharge to customers using credit cards. Those states include Colorado, Connecticut, Kansas, Massachusetts and Oklahoma. There are also a few states where the "no-surcharge" laws have been tested in the courts and found to be unconstitutional, such as in California, Florida and Texas. In New York, the courts recently held that surcharges were legal ONLY IF properly disclosed to the customer in advance of the charge. New York, like Maine, requires that a merchant post both the cost of paying with cash and the cost of paying with a card.
One of the more recent challenges that has appeared is the legality of charging a fee to customers who opt for a paper invoice and who choose to pay by check rather than credit card. As more and more businesses work to shift their payment processing to only credit cards (or other electronic payment options), those businesses are seeking to disincentivize their customers who ask for a paper invoice or who choose to still make payments by check. This issue was examined in a recent class action lawsuit brought against State Farm Insurance. In the State Farm case, the plaintiffs allege that State Farm's practice of charging its insurance customers an extra fee to send them a paper bill, as opposed to an on-line bill, is a violation of New York law. The contention is that, based on a New York law passed in 2011, merchants are prohibited from assessing service fees against customers receiving paper bills or even making payment by mail. The law was apparently created to avoid a disproportionate penalty against customers who are senior citizens or those with low incomes or who are otherwise unable to access a computer for payment.Although just filed, cases like this should sound an alarm for businesses who find it necessary to charge their customers separate fees for invoicing or other services. One essential question might be: Can a company charge a fee to its customers who prefer paper as compared to on-line transactions? Additionally, would any fee be a form of discrimination against those customers who do not have credit cards or the ability to pay on-line?