It's fast and convenient to use a credit card when buying something rather than having to have cash on hand or write a check. Of course, for that convenience, we're usually charged a fee - either by the credit card companies or the banks issuing the cards. Those fees are sometimes unexpected, high, and perhaps even illegal.
Some New York Lottery players were surprised, even angered, when they saw $10 transaction fees tacked onto their MasterCard credit card purchases for lottery tickets. The fees were unexpected because up until recently, MasterCard treated the purchases as government services, such as paying to renew your driver's license.
Here, a government agency may pay a fee (a "swipe fee") to MasterCard, and then pass on the cost to you by raising the price of the driver's license renewal, for example. However, card holders started getting charged fees directly when MasterCard started treating the transactions as cash advances, and charging the fee - and often the higher interest rates that go with cash advances.
Transaction Types and Fees
Generally, MasterCard and the other credit card companies charge fees based on a system of codes or classifications. Those codes are based on the type of business the seller does when accepting credit cards for payment. Essentially what MasterCard did in New York was switch codes to one where a higher and different fee was charged. That's according to Chase Bank, which issued some of the MasterCards used to pay for lottery tickets.
Because these codes are used nationwide, lottery players in other states that accept credit card payments may face similar charges. (Some states, like Connecticut, don't let players buy lottery tickets with credit cards).
In addition to those types of transaction fees, credit card companies, or the banks who issue the card to you - like Chase - may charge application fees, annual membership fees, and balance transfer fees.
Are they legal? For the most part, yes. Several federal laws regulate credit cards in all sorts of ways, from crediting payments to your account to fair collection practices. When it comes to fees, however, credit card companies and banks are generally only required to advise you about any fees associated with card use when you open an account and if there's any change in the fee structure or amount.
There's one exception: Under a new federal law, in the first year you open an account, you can't be charged fees of more than 25% of your credit limit.
It's unclear under federal law if MasterCard, Chase, or both were required to tell card holders that lottery sales in New York would be treated as cash advances. However, a New York Lottery official claims the charges are illegal under state law because the fees, in effect, amounted to charging more than face value for lottery tickets. In other words, in New York, it's illegal to charge a player $11 for a player $1 ticket.
Interestingly, in late September 2010, MasterCard agreed to stop charging the $10 fee to New York lottery players.
What You Can Do
There are some steps you can take to make sure you're not charged the wrong fees on your credit card purchases:
- It's probably several pages long and in tiny print, but read your card holder's agreement or contract very carefully for details on transaction fees
- Read your monthly bill carefully, too. Often credit card companies and banks add important information to those statements about changes to your account
- If you have any questions about whether a particular transaction carries a separate fee (like a cash advance or balance transfer), call the credit card company or the bank that issued the card before you complete the transaction
- If you've made a purchase and you see an unexpected fee or charge on your monthly statement, call the credit card company or bank immediately and ask about the charge. Ask if it will waive the charge and then try to avoid that charge in the future
- If the bank or credit card company won't budge and insists on the charges or fees, consider closing the account and moving to another credit card that doesn't charge the fees your dislike
- Contact the US Federal Trade Commission or your state attorney general's office if you suspect a credit card company is charging improper fees
If you're careful and pay attention to your credit card bills, not only can you avoid paying costly fees, but you may help other consumers, too. Perhaps you can change the way credit card companies and banks do business. You can do a lot to keep the credit card industry honest.
Questions for Your Attorney
- Can a credit card company demand payment in full immediately if I ask to close an account?
- Can I be charged interest on credit card fees?
- Does a fee or charge have to be credited to my account if I return the item that caused the fee to the store for a refund?