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PayPal Transaction fees: DOs and DONTs
9 years ago
General
Click here for 55 awesome artists, and links to their favorite artists! (and 30 more from 2013) (and 32 more from 2014)Back this giant monster Game, Kaiju Combat, and you can play Aram's sister-in-spirit, DragonLotus! 3 years ago I posted a journal about this, but a recent transaction had me go and refresh my knowledge, prompting this update. I haven't actually called PayPal to confirm any of this yet, so I give links to the policies and agreements I read to come to these conclusions -- you may have a different interpretation. If you have info that contradicts this, and you have some links to back it up, please comment below; I'd be happy to update this post!
BIG CAVEAT: if you're a seller, and you're NOT in the US, your PayPal may have different rules. There are different policies in different countries. This post only concerns US sellers. Though I advise you to go to the all agreements page, pick your country, and read the agreements related to the ones I mention below.
If you sell things via PayPal, and certain exceptions are not met, you cannot charge PayPal fees to your customers. The 2nd paragraph of the PayPal User Agreement reads:
You agree that you will not impose a surcharge or any other fee for accepting PayPal as a payment method. You may charge a handling fee in connection with the sale of goods or services as long as the handling fee does not operate as a surcharge and is not higher than the handling fee you charge for non-PayPal transactions.
There are some exceptions, which you can see by viewing the PayPal User Agreement: Buying section. A few paragraphs down under 'Fees', it currently says:
When you buy something from a seller who accepts PayPal you don’t pay a fee to PayPal unless your purchase requires a currency conversion. In that case, you will be charged a currency conversion spread. Your debit or credit card issuer may also charge you a separate fee for non-U.S. transactions.
In addition you may be required to pay a fee to PayPal if you are making a purchase using PayPal Business Payments and the seller discloses to you that you, as the buyer, must pay the fee.
What's PayPal Business Payments? That's a special agreement the seller accepts with PayPal that permits them to pass PayPal fees on to you. However, when they accept this agreement with PayPal, per the last line of that agreement they forgo any PayPal Seller Protection, which could be a big deal or not, depending on what you're selling. There's a lot of protection there, but it also requires stuff like delivery confirmation and other 'proofs', so it may not be that great for all situations.
I haven't figured out yet whether just passing on the fees implicitly binds sellers to that agreement, or if there's a special thing a seller needs to do with their PayPal account to associate with that agreement and get permission to pass on fees. If it's the latter, and you're a seller, and you haven't done that, then passing on fees to your customers is liable to get your account suspended. Please look into it! If PayPal is your primary way of getting paid by your customers, losing it for any length of time can be devastating. I've heard plenty of horror stories, so PLEASE don't let this happen to you!.
BIG CAVEAT: if you're a seller, and you're NOT in the US, your PayPal may have different rules. There are different policies in different countries. This post only concerns US sellers. Though I advise you to go to the all agreements page, pick your country, and read the agreements related to the ones I mention below.
If you sell things via PayPal, and certain exceptions are not met, you cannot charge PayPal fees to your customers. The 2nd paragraph of the PayPal User Agreement reads:
You agree that you will not impose a surcharge or any other fee for accepting PayPal as a payment method. You may charge a handling fee in connection with the sale of goods or services as long as the handling fee does not operate as a surcharge and is not higher than the handling fee you charge for non-PayPal transactions.
There are some exceptions, which you can see by viewing the PayPal User Agreement: Buying section. A few paragraphs down under 'Fees', it currently says:
When you buy something from a seller who accepts PayPal you don’t pay a fee to PayPal unless your purchase requires a currency conversion. In that case, you will be charged a currency conversion spread. Your debit or credit card issuer may also charge you a separate fee for non-U.S. transactions.
In addition you may be required to pay a fee to PayPal if you are making a purchase using PayPal Business Payments and the seller discloses to you that you, as the buyer, must pay the fee.
What's PayPal Business Payments? That's a special agreement the seller accepts with PayPal that permits them to pass PayPal fees on to you. However, when they accept this agreement with PayPal, per the last line of that agreement they forgo any PayPal Seller Protection, which could be a big deal or not, depending on what you're selling. There's a lot of protection there, but it also requires stuff like delivery confirmation and other 'proofs', so it may not be that great for all situations.
I haven't figured out yet whether just passing on the fees implicitly binds sellers to that agreement, or if there's a special thing a seller needs to do with their PayPal account to associate with that agreement and get permission to pass on fees. If it's the latter, and you're a seller, and you haven't done that, then passing on fees to your customers is liable to get your account suspended. Please look into it! If PayPal is your primary way of getting paid by your customers, losing it for any length of time can be devastating. I've heard plenty of horror stories, so PLEASE don't let this happen to you!.
California laws are very specific in that merchants can't impose hidden surcharges or after-fact fees to customers. In California, such act is ruled a fraud. Recently, restaurants that started charging a 15% service fee because of the new minimum wage law got hit with criminal fraud complaints by state regulators because they didn't post the intent to charge 15% service fee at entry point of the establishment and on their menus. The laws regarding advertised prices say that advertised prices are legal binding unless it was posted unknowingly with error. Which means a merchant that advertise a product at $10 must charge no more than $10 in the end. Sales taxes and government-related taxes and fees are exempt from this rule. Merchants may impose shipping and handling fees if the product is a physical product that require extra work to be delivered to customers.
If a merchant offers services or goods that are not tangible (non-physical), they cannot charge a shipping and handling fee as it will be considered an act of fraud. There is also a federal law that prohibit merchants from imposing credit card surcharge to customers as such act is ruled an after-fact fee, even if merchants stated ahead of time. So PayPal imposes this rule in compliance with California State laws and Federal laws.
Merchants may, however, increase the baseline pricing of their goods and services to factor in the cost of doing businesses through PayPal and other payment services. This is the best approach to the PayPal fee issue for artists.
It's not because PayPal is being an ass about it. It's because there are state and federal laws that prohibit such fees from merchants. PayPal is merely enforcing the laws on the books otherwise they'd get hit with criminal complaints of conspiracy to commit fraud by state and federal regulators.
2009: Dodd-Frank Wall Street Reform & Consumer Protection Act protects consumers against surcharges
2010: DoJ sues Mastercard & Visa to force them to allow merchants to charge less for cash
2013: DoJ & Mastercard/Visa settle, and merchants suddenly allowed to start charging credit card surcharges despite CC company objections (but most merchants didn't bother, fearing consumer backlash) (some still offer cash discounts though)
2016: Appeals court throws out the settlement; CC companies again allowed to keep merchants from passing on surcharges
As of January 27th, 2013, according to a legal settlement with the feds (, merchants are now allowed to pass on surcharges to customers and/or offer discounts for non-creditcard transactions, except in certain states where it is still restricted by state law (see [url=https://usa.visa.com/support/consumer/visa-rules.html#3)
Merchant contracts may also prohibit this practice (e.g., PayPal's US policy).
The verbage at that Visa link makes it seem like there's a fair amount of litigation in motion making these rules somewhat volatile. I suspect with our new Supreme Leader... err, SCOTUS Justice ... being pro-business, it'll be interesting to see how he rules on such cases that may come before him. Credit Card companies make their money regardless, it's just a matter of whether he'll favor merchant businesses passing these fees to the consumers. My pet is that he will favor that, as it'll be "more free market" and less consumer power.
So volatile, in fact, that just last week there was a relevant SCOTUS ruling that may thwart New York's credit card surcharge ban on the grounds of .. get this .. Free Speech. Because apparently saying "you can charge $0.30 on $10 for a credit card transaction, but you can't charge 3%" is harming people's ability to express their opinions. *sigh*
Related links:
NCSL resource - has current details for every state, not just the litigious 11
Visa's FAQ for merchants
Oct 2010 :: DoJ sues MC/Visa because MC/Visa rules require cash & charge prices to be the same; unfair to merchants & anti-competitive
Jul 13 2012 :: DoJ & MC/Visa settle MC/Visa agree to drop requirements for charge + cash payments to be the same
June 2016 :: Appeals court rejects the settlement
Colorado credit surcharge fraud
Federal Trade Commission rules
2009 Dodd–Frank Wall Street Reform and Consumer Protection Act
Yeah, once in a while someone adds paypal fees to their prices, but there are instances where it's legal to do so (e.g., the seller lives in a country where PayPal's policies permit it, which is most of them). So I learned to be careful not to lay down the law-hammer on people and just inquire and educate instead.
I look at it this way - lots of artists don't charge sales tax, but they should. In fact, I can't remember the last time I paid sales tax on an online commission. DOH! That said, if once in a while there's a bit extra on the price, I usually just pay it (I tend to tip anyway - the extra fee often just eats into that).