Is an online convenience fee for paying rent an illegal credit card surcharge in Texas?

Plain-English summary

A House committee chair, prompted by a dispute the Texas Apartment Association had raised with the Office of Consumer Credit Commissioner, asked whether the convenience fee a tenant pays when paying rent online through a third-party processor amounts to an illegal credit-card or debit-card surcharge. Finance Code section 339.001 bars a seller of goods or services from imposing a surcharge on a buyer who uses a credit card instead of cash, a check, or a similar means of payment, and Business and Commerce Code section 604A.002 sets the same rule for debit and stored-value cards.

The AG started with how the courts read these laws. The Finance Code does not define "surcharge," but the Fifth Circuit had recently construed it for purposes of section 339.001 to mean an additional amount above the seller's regular price. Read that way, the statute forbids charging a credit-card customer more than the regular price but is silent about other pricing, so a merchant may set a regular price and offer a discount to cash customers. In other words, a seller may discount for cash but may not set a regular price and then charge credit customers more.

The answer to the rent question, the AG said, turns on who is actually imposing the online fee. If a genuinely arms-length third-party processor charges its own fee for the service of letting a customer pay electronically, the processor is acting as its own merchant charging for a service, and that does not violate the surcharge statutes. But if the relationship between the property owner and the processor blurs the line between them, resembling a general agency or joint venture, a court could treat the two as a single entity and find the owner to be imposing a credit-card surcharge. Whether any particular owner-vendor relationship crosses that line is a fact question the AG could not answer in the opinion process.

On the third question, whether a fee is permissible if it applies uniformly to all online payment methods (credit, debit, ACH, and other electronic formats) rather than singling out cards, the AG again pointed to the separate-vendor analysis. If a separate vendor charges a uniform fee for all electronic payments, that uniform price does not violate the surcharge statutes. If the vendor and owner are treated as one, the result depends on the pricing structure: if in-person card payment is priced the same as other in-person methods, any added online cost reflects the online method, not the card, and is not a surcharge. The harder case is when there is no in-person card option at all, where a buyer might argue the only way to pay results in a higher price; but under the Fifth Circuit's reading, the anti-surcharge laws still permit a regular price discounted for cash. Finally, the AG declined to defer to the Consumer Credit Commissioner's advisory bulletin, because deference applies only to formal interpretations of genuinely ambiguous language, and neither condition was present here.

Currency note

This opinion was issued in 2016. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The surcharge provisions of the Finance Code and Business and Commerce Code, and the case law construing them, may have developed since 2016, so confirm the current law before relying on these specifics.

What the opinion meant for those who asked

The House committee chair and the Legislature (as the opinion described it): The opinion told the requester that the statutes do not flatly answer the rent-payment question; the legality of an online fee depends on facts about who imposes it and how the pricing is structured. It declined to treat the agency bulletin as a definitive answer because the statute was not ambiguous.

Rental property owners and operators (as the opinion described it): The opinion described how an owner whose online fee is charged by a genuinely separate, arms-length processor for the electronic-payment service is not imposing a surcharge, while an owner so entwined with the processor that a court would treat them as one entity could be found to impose a prohibited surcharge.

Third-party payment processors and vendors (as the opinion described it): The opinion treated an arms-length processor as its own merchant charging a fee for the service of electronic payment, and described a uniform fee applied to all electronic payment methods as outside the surcharge prohibition when the vendor is separate from the seller.

Tenants and other buyers paying online (as the opinion described it): The opinion noted that a buyer might argue she faces a credit-card surcharge when the only way to pay is online and that path costs more, but explained that, under the Fifth Circuit's reading, the law still allows a seller to set a regular price and discount it for cash.

Common questions

Is a convenience fee for paying rent online a credit-card surcharge in Texas?
Not necessarily, under this opinion. If a genuinely arms-length third-party processor charges the fee for the service of paying electronically, the AG said it is not a surcharge by the property owner. The answer can change if the owner and processor are so entwined that a court treats them as one entity.

What do the surcharge laws actually prohibit?
They bar a seller from charging a credit or debit-card buyer an additional amount above the regular price that cash customers are not charged (Tex. Fin. Code § 339.001(a); Tex. Bus. & Com. Code § 604A.002(a)).

Can a business offer a cash discount or charge cards more?
Under the Fifth Circuit's reading the AG followed, a merchant may set a regular price and discount it for cash customers, but may not set a regular price and charge credit customers more than that price.

Does it help to charge the same fee on all online payment methods?
The opinion said a uniform fee on all electronic payment methods, charged by a vendor separate from the owner, would not violate the surcharge statutes. If the vendor and owner are treated as the same entity, the result depends on whether in-person card payment is available and priced the same as other in-person methods.

Did the AG follow the Consumer Credit Commissioner's bulletin?
No. The AG explained that an agency interpretation gets deference only when it is a formal interpretation of genuinely ambiguous statutory language, and concluded neither condition was met, so it did not defer to the bulletin.

Background and statutory framework

Finance Code section 339.001(a) prohibits a seller of goods and services from imposing a surcharge on a buyer who uses a credit card for an extension of credit instead of cash, a check, or a similar means of payment (Tex. Fin. Code § 339.001(a)). The Office of Consumer Credit Commissioner enforces section 339.001 (id. § 14.101). Because the Finance Code does not define "surcharge," the Fifth Circuit construed the term, for purposes of section 339.001, as an additional amount above the seller's regular price, upholding the statute against First Amendment and vagueness challenges and explaining that the law forbids an extra charge for paying with a credit card but allows a merchant to discount and dual-price as it wishes (Rowell v. Pettijohn, 816 F.3d 73, 76-84 (5th Cir. 2016)).

The parallel debit-card provision, Business and Commerce Code section 604A.002(a), prohibits a merchant from imposing a surcharge on a buyer who uses a debit or stored-value card instead of cash, a check, a credit card, or a similar means of payment (Tex. Bus. & Com. Code § 604A.002(a)). Chapter 604A defines "surcharge" as an increase in the price imposed on a buyer who pays with a debit or stored-value card that is not imposed on a buyer who pays by other means, and defines "merchant" as a person in the business of selling or leasing goods or services (id. § 604A.001(5), (3)).

The scenario raised the question of whether the property owner or the third-party processor imposes the online fee. A truly arms-length arrangement would not involve the owner imposing an additional fee and would not run afoul of the statutes, because the processor is itself a merchant charging for the service of electronic payment. But if the relationship blurs the line of autonomy, akin to a general agency or joint venture, a court could treat the parties as one and find the owner imposing a surcharge (Ayco Dev. Corp. v. G.E.T. Serv. Co., 616 S.W.2d 184, 186 (Tex. 1981)). Whether a given relationship reaches that level is a fact question outside the opinion process.

An agency's interpretation receives deference only when the statutory language is ambiguous and the interpretation was adopted after formal proceedings, and even then deference is "not conclusive or unlimited" (TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 438 (Tex. 2011); Fiess v. State Farm Lloyds, 202 S.W.3d 744, 747 (Tex. 2006)). Because the statute was not ambiguous and no formal proceeding produced the bulletin, the AG did not defer to the Consumer Credit Commissioner's advisory bulletin.

Citations

Statutory provisions:

• Tex. Fin. Code § 339.001(a) (credit-card surcharge prohibition)
• Tex. Fin. Code § 14.101 (OCCC enforcement)
• Tex. Bus. & Com. Code § 604A.002(a) (debit-card surcharge prohibition)
• Tex. Bus. & Com. Code § 604A.001(3), (5) (definitions of "merchant" and "surcharge")

Cases:

• Rowell v. Pettijohn, 816 F.3d 73 (5th Cir. 2016)
• Ayco Dev. Corp. v. G.E.T. Serv. Co., 616 S.W.2d 184 (Tex. 1981)
• TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432 (Tex. 2011)
• Fiess v. State Farm Lloyds, 202 S.W.3d 744 (Tex. 2006)

Texas Attorney General opinions:

• Tex. Att'y Gen. Op. Nos. KP-0047 (2015), GA-0951 (2012)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0095
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2016/kp0095.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

June 16, 2016

The Honorable James Keffer Opinion No. KP-0095
Chair, Committee on Natural Resources
Texas House of Representatives Re: Whether a rental property owner's use of
Post Office Box 2910 an online payment option that is accompanied
Austin, Texas 78768-2910 by a convenience fee involves the imposition
of a credit-card surcharge in violation of state
law (RQ-0084-KP)

Dear Representative Keffer:

    You ask three questions about the legality of a fee or charge imposed on a tenant who uses an online payment option to pay rent and ancillary charges to a rental property owner through a third-party vendor. [1] You question whether this fee or charge for paying online could constitute a prohibited surcharge on the use of credit or debit cards in violation of section 339.001 of the Finance Code and section 604A.002 of the Business and Commerce Code. See Request Letter at 1. Briefing submitted to this office indicates that the underlying matter, brought to your attention by the Texas Apartment Association ("TAA"), has already been considered and made the subject of an advisory letter by the Texas Office of Consumer Credit Commissioner ("OCCC"), the entity tasked with enforcement of Finance Code section 339.001. [2] See TEX. FIN. CODE § 14.101. It appears from the briefing that the controversy giving rise to your request stems from TAA's disagreement with the OCCC's interpretation that the online pricing practice at issue is not permissible. See TAA Brief at 3-5; OCCC Brief at 2-5.

    Subsection 339.001(a) of the Finance Code prohibits a seller of goods and services from "impos[ing] a surcharge on a buyer who uses a credit card for an extension of credit instead of cash, a check, or a similar means of payment." See TEX. FIN. CODE § 339.001(a). [3] Noting that the Finance Code does not define the term "surcharge," the Fifth Circuit Court of Appeals recently construed the term for purposes of section 339.001 to be like the federal definition of surcharge: "an additional amount above the seller's regular price." Rowell v. Pettijohn, 816 F.3d 73, 80-82 (5th Cir. 2016) (upholding the constitutionality of Finance Code section 339.001 against First Amendment and vagueness claims). The Court undertook an extensive historical analysis of how federal law formerly allowed discounts for cash but forbid surcharges for credit. Id. at 76-77. After the federal prohibition on surcharges lapsed in 1984, states like Texas enacted their own anti-surcharge laws, but the law allowing cash discounts remains in effect. Id. at 77. The Court stated that under a plain reading, section 339.001 "forbids a merchant from imposing an extra charge for a purchase with a credit card, and is completely silent as to any other form of pricing." Id. at 84. For example, section 339.001 would "not forbid merchants from charging cash customers a different price than that charged to credit-card customers." Id. at 81. Instead, it would "forbid[] charging credit-card customers an additional amount above the regular price that is not also charged to cash customers." Id. (internal quotation marks omitted). Thus, section 339.001 "allows a merchant to discount and dual-price as it wishes." Id. (discussing the permissible practice of offering a discount for payment in cash). In other words, a seller or merchant may establish a regular price and discount for cash customers but may not establish a regular price and charge more for credit customers.

    The parallel provision governing debit cards, subsection 604A.002(a) of the Business and Commerce Code, similarly prohibits a merchant from "impos[ing] a surcharge on a buyer who uses a debit or stored value card instead of cash, a check, credit card, or a similar means of payment" in a sale of goods or services. TEX. BUS. & COM. CODE § 604A.002(a); see also id. § 604A.001(5) (defining "surcharge" for purposes of Business and Commerce Code chapter 604A as "an increase in the price charged for goods or services imposed on a buyer who pays with a debit or stored value card that is not imposed on a buyer who pays by other means").

   With regard to these statutes, you first ask:

           Whether an owner of rental property who offers an online payment option through a third-party payment processor can be deemed under Sections 339.001 and 604A.002 ... to be a party imposing a "surcharge" when the processor remits no portion of any fee imposed to make online payments to the owner[.]

Request Letter at 1. Related to this question, you also ask:

           Whether it matters to the application of Sections 339.001 and 604A.002 ... that a third-party vendor that provides arms-length payment processing services to a rental property owner or operator provides additional arms-length services to the owner or operator[.]

Id. The plain language of the two provisions you ask about prohibits a "seller" or "merchant" from imposing a surcharge on a buyer paying by credit or debit card. TEX. FIN. CODE § 339.001(a); TEX. BUS. & COM. CODE § 604A.002(a). The statute defines a merchant as "a person in the business of selling or leasing goods or services." TEX. BUS. & COM. CODE § 604A.001(3). The scenario you describe raises the question of whether it is the owner/operator of the rental property or the third-party processor that is imposing the online payment fee. A truly arms-length arrangement would not involve the property owner imposing an additional fee and would not run afoul of the statutes because the third-party processor is a merchant charging a fee for the service of paying electronically. But if the relationship between a seller and a third-party payment processor blurs the line of autonomy between the parties, akin to a general agency or joint-venture relationship, a court could find the two parties effectively to be one and hold that the property owner would be imposing a credit-card surcharge. See Ayco Dev. Corp. v. G.E.T. Serv. Co., 616 S.W.2d 184, 186 (Tex. 1981) (explaining the elements of a joint venture). Whether any given relationship between a seller and a vendor rises to a problematic level is a question of fact that cannot be addressed in an attorney general opinion. See Tex. Att'y Gen. Op. No. KP-0047 (2015) at 3.

    In your third question, you ask:

            Whether a service fee for online payments is permitted and not a surcharge so long as it applies to all forms of online payment (credit, debit, ACH, electronic funds transfer or other electronic payment format) and does not single out credit or debit card payments[.]

Request Letter at 1. The law does not expressly address the imposition of an online convenience fee charged uniformly to all forms of electronic payment. It plainly prohibits the imposition of an extra fee for using a credit or debit card "instead of" another means of payment. TEX. FIN. CODE § 339.001(a); TEX. BUS. & COM. CODE § 604A.002(a); see also Tex. Att'y Gen. Op. No. GA-0951 (2012) at 2 (concluding that Finance Code subsection 339.001(a) does not prohibit a seller from charging a service fee on all consumer transactions above a threshold dollar amount, provided that the fee is not limited to the use of a credit card). But under recent Fifth Circuit precedent, this does not prohibit the practice of discounting a regular price for customers who pay with cash. See Rowell, 816 F.3d at 81. The answer to this question hinges on the dichotomy addressed above regarding whether the third-party vendor is separate from the owner or operator. If a third-party vendor is separate from the owner or operator and uniformly charges a fee to customers for all means of electronic payments, then the vendor has a uniform price that would not violate the surcharge statutes. If, however, a court viewed the vendor and owner or operator to be the same entity, then the seller or merchant would be charging two prices: one for electronic methods of payment and one for in-person methods of payment. The outcome would hinge on the variations of charges that would occur. For example, if there were an option for in-person payment with credit or debit card that was the same price as other in-person means of payment (and the same uniformity in pricing were true for electronic means), then there would not be a surcharge for credit or debit card payments within the meaning of the statute. Any additional pricing would be due to the method of payment being online, not a fee for the means of payment being by credit or debit card. The more difficult question arises if there is no in-person method of paying by credit or debit card. In such an arrangement, a buyer might argue she is incurring a credit-card surcharge because her only means to pay results in a higher price. But under recent Fifth Circuit precedent, the anti-surcharge statutes do not prevent sellers or merchants from charging a regular price and discounting it for cash customers. [4] Id.

    Briefing submitted to this office notes that the OCCC has provided guidance through an advisory bulletin regarding the credit-card surcharge prohibition and suggests that the bulletin should be given serious consideration. See OCCC Brief at 3; see also OCCC ADVISORY BULLETIN B15-2, ALTERNATIVES TO CREDIT CARD SURCHARGES (Revised June 25, 2015) ("Bulletin"). [5] When a statute is vague, ambiguous, or leaves room for policy determinations, we will defer to the agency's interpretation "unless it is plainly erroneous or inconsistent with the language of the statute." TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 438 (Tex. 2011). "Deference to the agency's interpretation, however, is not conclusive or unlimited." Id. Deference "applies to formal opinions adopted after formal proceedings," and "the language at issue must be ambiguous." Fiess v. State Farm Lloyds, 202 S.W.3d 744, 747 (Tex. 2006). Because neither exists in this instance, we cannot defer to the OCCC Bulletin to provide definitive answers to the questions posed.

[1] See Letter and related attachment from Honorable James Keffer, Chair, House Comm. on Nat. Res., to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Dec. 17, 2015), https://www.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter" & "Attachment," respectively).

[2] See Letter from David Mintz, Vice President of Gov't Affairs, Tex. Apartment Ass'n at 1-2 (Jan. 20, 2016) ("TAA Brief"); Letter from Matthew J. Nance, Deputy Gen. Counsel, Tex. Office of Consumer Credit Comm'r at 1-5 (Jan. 22, 2016) ("OCCC Brief") (briefs on file with the Op. Comm.).

[3] Your questions assume that the payments for rent and ancillary charges at issue are payments for goods or services, and we answer accordingly. You do not ask, and we therefore do not determine whether any specific rental payment is for goods and services.

[4] Of course, such a conclusion is contingent on the seller's compliance with the requirements articulated in Rowell, such as making clear that the higher price is a regular price and that persons paying cash in person may receive a discount. Other variations could also occur, such as an owner or operator charging different prices for in-person payments with credit or debit cards than for cash. The validity of such methods would turn on compliance with the anti-surcharge statutes articulated in Rowell.

[5] Available at http://www.occc.texas.gov/sites/default/files/uploads/misc/b15-2-credit-card-surcharge-alternatives-6-25-15.pdf.

                                  SUMMARY

          A court is likely to conclude that a fee uniformly charged to all online means of payment by an arms-length third-party vendor does not violate the surcharge prohibitions of Finance Code subsection 339.001(a) or Business and Commerce Code section 604A.002. Whether a rental property owner or operator and a third-party vendor of online payment processing services have a true arms-length relationship is a question of fact that cannot be answered in the opinion process.

                                         Very truly yours,

                                         KEN PAXTON
                                         Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

BRANTLEY STARR
Deputy First Assistant Attorney General

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

BECKY P. CASARES
Assistant Attorney General, Opinion Committee