By the Division of Banks

You may view and print this full selected Opinion as Adobe Acrobat PDF File pdf format of    O08041.pdf  (157KB).

May 14, 2010

William J. Mulford
Superintendant of Schools
Diocese of Worcester
49 Elm Street
Worcester, MA 01609-2597



Dear Mr. Mulford:

This letter is in response to your correspondence dated December 17, 2008, January 20, 2009 and December 10, 2009 to the Division of Banks (the "Division") in which you requested an opinion relative to whether a "convenience fee", so called, charged and collected by a third-party service provider when collecting tuition payments on behalf of an educational institution constitutes an illegal surcharge for the use of a credit card in such transaction. This matter has also been discussed with you in telephone discussions, the most recent on February 9, 2010. I regret the extended delay in this response to you.

In your letter you state that schools within the Diocese of Worcester ("the "Diocese") use a third-party service provider to process budgeted tuition payments via pre-authorized electronic debit and personal checks. The Diocese would like to offer the option to parents of paying tuition payments by credit card via the telephone or the internet. As part of this payment option, there would be a convenience fee charged for this method of payment. The convenience fee would be a percentage of the payment amount. According to your letter, the fee would be paid directly to the third-party servicer by any parent choosing to pay by credit card. The third-party service provider would collect and retain the convenience fee, not the Diocese. You have been told by a certain third-party service provider that the convenience fee violates the prohibition against credit card surcharges set forth in Massachusetts General Laws chapter 140D, section 28A based on a 1998 Opinion letter by the Division (the "1998 Opinion"). You ask if the Division's position as stated in the 1998 Opinion remains in effect.

The Division has reviewed this matter thoroughly based on the facts presented as well as the language of said section 28A. The issue has also been reviewed in light of the 1998 Opinion. Said section 28A(a)(2) states that "No seller in any sales transaction may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check or similar means." In its analysis of credit card surcharge laws, the Division has found that the federal truth-in-lending law included a ban on credit card surcharges at one time but the ban expired in 1984. The Massachusetts provision remains in effect as does a credit card surcharge ban in some other states.

The law has not been amended and the Division is not looking to create loopholes in it. However, the Division recognizes that payment mechanisms and consumer practices have changed since the 1998 Opinion while the cost of goods and services, such as tuition, have dramatically increased. Financial service transactions continue to be segmented and outsourced with backroom operations being eliminated. These developments have obviously changed even more dramatically since this surcharge provision was added to the General Laws, as currently drafted, in 1981. For all these reasons, the Division has revisited this issue and finds as follows.

The Division has determined that the third-party service provider contracted by the Diocese of Worcester is a completely independent company with no other business relationship to the Diocese. The proposed convenience fee to be charged to parents would be based on the costs associated with processing a tuition payment made by a credit card, including the fee charged by the credit card issuer for use of the card. Also, the payment of a tuition payment by credit card is a voluntary choice made by the parent and not imposed by the Diocese. In order to avoid any fee the parent has the option to pay tuition by cash or check. Based on these facts, it is the position of the Division that a convenience fee under these circumstances would not constitute a "surcharge" "imposed" by the "seller" in violation of said section 28A.

It is the position of the Division that this opinion would be negated in its entirety if in offering the option of making tuition payments by credit card through a third-party service provider either the Diocese or any of its employees receive any direct or indirect compensation of any kind whatsoever or consideration in any form from the third-party service provider or any other party or if the Diocese or any of its employees have any relationship with the third-party service provider or any affiliate, subsidiary or related party thereof. If these facts were to exist then the "seller" would be involved in imposing the "surcharge" thereby triggering the statutory prohibition.

Again, I apologize for the extended delay in response to your letter. However, a thorough analysis of the law was necessary given the context of a convenience fee in relation to the language of section 28A and other inquiries made during the pendency of this matter.

The conclusions reached in this letter are based solely on the facts presented. Fact patterns which vary from that presented may result in a different position statement by the Division.

The Division distinguishes this opinion from the 1998 Opinion by the facts not presented in that matter as well as the limitations and distinctions detailed herein between the "seller" and the independent third party servicer.


Sincerely,


Joseph A. Leonard, Jr.
Deputy Commissioner of Banks
and General Counsel