Welcome to the Bukowski Law Firm blog. We will update this at least once per month with a different legal issue that affects property owners and managers in Texas. We hope you will find it useful. If you read anything that leads to a follow up question, please do not hesitate to contact us.
This month, we are starting with credit card fees. As many of you know, the Texas Finance Code prohibits sellers of goods and services from charging a buyer a fee to purchase goods or services with a credit card. Tex. Fin. Code § 339.001. This ban on surcharges applies to property owners collecting rent. As a result, property owners are not allowed to charge renters a surcharge or fee for using a credit card – regardless of whether the owner must pay a fee to the credit card company and regardless of whether the merchant agreement allows such a fee. As we discuss below, there are ways around this ban but they require a merchant to follow very specific rules.
A group of merchants recently challenged the constitutionality of this statute in federal court. See Rowell, et al. v Pettijohn, Cause No. A-14-CA-190-LY in the United States District Court, Western District of Texas. The plaintiffs argued the statute violated their First Amendment freedom of speech right and that the statute was so vague it violated due process. Id. In February 2015, the District Court dismissed the lawsuit. See Order Granting Motion to Dismiss. The District Court held that the law “regulates only prices charged, an economic activity that is within the state’s police power, and does not implicate First Amendment speech rights. Id. (the “law is within the state’s police powers to regulate business and must be upheld as an economic regulation supported by a rational basis.”) The Court also ruled that the statute is not vague but quite specific – on its face it proscribes a single activity – the act of charging an additional fee for goods and services when a purchaser pays by credit card. Id. (The “law is simple and straightforward – it proscribes a single activity – charging more for credit card payment.”) As a result, the statute is constitutionally valid.
Given this statute, what is a property owner to do? Tenants often want to pay their rent with a credit card – especially online. But credit card companies usually charge a property owner a service fee for each transaction. If this transaction fee cannot be passed on to the tenant, how can the owner accept credit cards?
The Texas Office of Consumer Credit Commissioner (“OCCC”) recently distributed an advisory bulletin outlining five potential alternatives to credit card surcharges. See Alternatives to Credit Card Surcharges Advisory Bulletin, OCCC, June 25, 2015. The five alternatives the OCCC listed are:
• Uniform pricing with no surcharge, fee, or discount – this is not really an alternative at all. A property owner can simply charge the same amount of rent to all renters regardless of how they pay.
• Uniform convenience fee – property owners are allowed to charge a convenience fee, but it must be the same fee to all residents, regardless of how they pay.
• Cash discount – this is the alternative merchants most often use in Texas. While a property owner (or any other merchant) cannot charge a surcharge for credit card use, it can give a discount from the regular pricing to a tenant who pays his rent in cash. The key to this alternative, however, is that the discount must be a real discount from a set price. For a property owner, therefore, this would likely require re-doing old leases and renting at a different, higher rate for new leases. The rental rate would have to include the possibility of a cash discount.
• Option to pay by credit card with no fee – The property owner may provide multiple ways to pay by credit card – and charge a fee as long as one of the ways does not result in a fee. For example, the owner could charge the tenant a fee to pay by credit card online but not charge a fee to pay by credit card in person at the rental office. In this way, the fee is for using the online services, not for just using a credit card.
• Third-Party payment processor – A property owner can hire a third party payment processor to process the credit card payments. That processor is then allowed to charge a fee for the service. That fee, however, cannot be shared with the property owner in any way. This includes getting a benefit from the processor in another, separate transaction. It also means that the processor must be a completely separate entity – it cannot be owned in whole or in part by the property owner.
The Texas Finance Code’s ban of credit card surcharges puts a strain on property owners in an age when more and more tenants want to pay with a credit card. With a little foresight and guidance from the OCCC, however, there are ways to work around this ban.
If you have any questions, please do not hesitate to contact Sean Bukowski at 512-614-0335 or firstname.lastname@example.org.