Can An Extra Fee Be Charged for Premium Payment by Credit Card?

I was recently asked the above question by a caller to the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia.  It is one that I had addressed before in other such calls, so I thought it would be a good topic for a blog post. 

Unlike the issue of charging a fee to an insured for obtaining an insurance policy (click here for a post on that issue), this question deals with recovering the charge imposed on any business that accepts payment by credit card for the services it renders or the products it sells.  As most of my readers probably know, there is a cost paid by such businesses for processing a credit card payment.  Depending on the credit card company involved that cost can be as high as 2 or 2.5 percent of the total amount charged.  Over time that cost can add up to a significant number.

If permitted by the agreement an agency has with its credit card processing company, I think a good argument can be made it is permissible to charge a fee for a premium that is paid using a credit card, if the insured has a choice in how the premium can be paid and there is a payment option available to the insured that would not result in any extra fee being assessed against the insured. If the insured has such a choice, I don’t think the prohibition in O.C.G.A. Section 33-6-5(6)(B) on collecting “as premium or charge for insurance” any sum in excess of the premium or charge for that insurance which was specified in the policy in question would be violated. Where such a choice exists, the agent would be providing a service in excess of the service associated with obtaining the insurance policy by allowing payment of the premium by credit card.

As long as the insured can pay the premium or other charge for insurance in a way that does not result in the payment of an extra fee, providing another more convenient method of payment would be an extra service for which the agency could charge a fee. To be safe, I suggest that the fee charged be no more than the amount the agency would have to pay its credit card processing company. I don’t think an agency would be able to get away with charging more than that amount for very long for competitive reasons, and it would not look good to the Insurance Commissioner’s Office for an agency to be making a profit by charging such a fee. I would also recommend that the insured be informed in writing of the fact that an extra fee would be imposed if a particular method of payment for a premium was used, the amount of that fee, and the other available payment method(s) that would not result in the imposition of such a fee.  This written notice should be given sufficiently in advance of the premium due date to give the insured a realistic opportunity to use a payment method that would not result in the charging of an extra fee.

However, if the insured has no premium payment method available to him or her that would not result in the imposition of a transaction fee on an agency, I don’t think it could validly pass along that fee to its insured, as it would then be in technical violation of O.C.G.A. Section 33-6-5(6)(B).   Of course, just because it’s probably legal to charge a fee for payment by credit card does not mean it’s a good idea to do so, especially if an agency’s competitors were not charging such a fee.

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2 thoughts on “Can An Extra Fee Be Charged for Premium Payment by Credit Card?

  1. Interesting thoughts but incomplete. In fact the Merchant agreement the agency has to sign to have the ability to accept payments by Visa speaks directly to additional fees the merchant is allowed to charge based on method of payment.

    Visa allows both a “convenience fee” and a “surcharge” under rather narrow usage terms.

    A “convenience fee” is required to be a flat dollar fee regardless of the size of the payment.

    A surcharge may be a flat dollar fee or a percentage but can only be charged on credit card transactions. It cannot be charged on debit card transactions. The only way to know if a card is a credit or debit card is to access a BIN Table. Not something many merchants have access to. Additionally, the amount of the surcharge cannot exceed the cost of the discount rate for the transactions. This is an impossible amount to know in advance as there are 1000’s of different rate structures based on the card used for payment and who issued the card.

    Another factor which has to be considered is the specific state’s premium trust account laws. I do not know the ones for Georgia, but some states are very restrictive on the reason funds can be withdrawn from premium trust accounts.

    Finally, it has been my experience that most states are not as cavalier as you expect about extra fees charged by agents. Most states require at a minimum the agent to be authorized in writing by the insured for each additional fee charged by the agent.

    I hope this is helpful information.

    • Thank you for your comments about VISA’s rules regarding the charging of a fee for payment by a credit card. As noted in my post, an agent or agency must look first to its agreement with its credit card processor to determine what can be done in this area under that agreement. While I am not aware of any specific ruling by Georgia’s Insurance Commissioner on this subject, I certainly agree that the safest course of action is for the agent to obtain the insured’s written acknowledgment that an extra fee will be charged for payment by credit card and the amount of that fee. In addition, in my opinion, such a fee can only be charged under Georgia’s Insurance Code if the insured has another method of payment available for use that will not result in the payment of an extra fee and is made aware of that fact in sufficient time to use the other payment method.

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