MEGA UPDATE: Requiring Minimum Credit Card Purchases is a Violation

Erik went ahead and consolidated the merchant policies of Discover, Mastercard and Visa, which leads to a startling conclusion.

All of them explicitly prohibit requiring minimum credit card charges.

So then, you should be able to buy that pack of gum, or cup of joe with a credit card if you want to. And if a store makes you pay a minimum charge, you can often write them up.

What’s a small business to do? Well, as Digg reader Steger suggests, they can raise the prices and offer cash customers a discount.

After the jump, a compendium of the rules, taken directly from the contracts the merchants signed with the credit card companies…

DISCOVER NETWORK

A. As per page four (4) of The “Merchant Operating Regulations,” incorporated into the “Merchant Services Agreement” as Exhibit A, expressly prohibits the following merchant conduct:

3.0 GENERAL REQUIREMENTS

3.1 Surcharges
Unless otherwise agreed upon by us in writing, you may not impose any surcharge, levy or fee of any kind for any transaction where a Cardmember desires to use a Card for any purchase of goods and services.

3.6 Minimum/Maximum Dollar Limits and Other Limits
You may not require that any Cardmember make a minimum dollar purchase in order to use a Card and, other than when we have not authorized a Cardmember’s transaction, you may not limit the maximum amount that a Cardmember may spend when using a Card.

3.7 Equal Treatment of Card Sales versus other Cards
You may not institute or adopt any practice that discriminates or provides unequal treatment for users of a Card versus any other card products that you accept.

MASTERCARD INTERNATIONAL INCORPORATED

A. As per pages two-twenty one (2-21) through two-twenty two (2-22) of the “Merchant Rules Manual,” the following MasterCard Rules are imposed on merchant conduct:

9.11 Honor MasterCard Cards

9.11.1 Honor All MasterCard Cards
The merchant must honor all valid MasterCard cards without discrimination when properly presented for payment. The merchant must maintain a policy that does not discriminate amount customers seeking to make purchase with a MasterCard card. A merchant that does not deal with the public at large (for example, a private club) is considered to comply with this rule if it honors MasterCard cards of cardholders that have purchasing privileges with the merchant.

9.11.2 Cardholder Identification

A merchant must not refuse to complete a MasterCard card transaction solely because a cardholder who has complied with the conditions for presentment of a card at the POI refuses to provide additional identification information, except as specifically permitted or required by the Standards. [Note: The "Merchant Rules Manual" at page two-two (2-2) provides that "As used herein, Standards means the bylaws, rules and policies, and the operating regulations and procedures of the Corporation, as may be amended from time to time.] A merchant may require additional identification form the cardholder if the information is required to complete the transaction, such as for shipping purposes. A merchant in a county or region that supports use of the MasterCard Address Verification Service (AVS) may required the cardholder’s ZIP or postal code to complete a cardholder-activated terminal (CAT) transaction, or the cardholder’s address and ZIP or postal code to complete a mail order, phone order, or e-commerce transaction.

9.12 Prohibited Practices

9.12.1 Discrimination

A merchant must not engage in any acceptance practice that discriminates against or discourages the use of MasterCard cards in favor of any other acceptance brand.

9.12.2 Charges to Cardholders

A merchant must not directly or indirectly require any MasterCard cardholder to pay a surcharge or any part of any merchant discount or any contemporaneous finance charge in connection with a MasterCard card transaction. A merchant may provide a discount to its customers for cash payments. A merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the life) if the fee is imposed on all like transactions regardless of the form of payment used.

  • A surcharge is any fee charge in connection with a MasterCard transaction that is not charged if another payment method is used.

  • The merchant discount fee is the fee the merchant pays to its acquirer to acquire transactions.

9.12.3 Minimum/Maximum Transaction Amount Prohibited

A merchant must not require, or post signs indicating that it requires, a minimum or maximum transaction amount to accept a valid MasterCard card.

B. As per page two-nineteen (2-19) through two-twenty (2-20) of the “Merchant Rules Manual,” any violation by a merchant of the aforementioned MasterCard Rules is addressed as follows:

9.5 Merchant Noncompliance

9.5.1 Specified Rules Violations

If the Corporation becomes aware that any merchant has violated any of the following rules:

  • Honor MasterCard Cards (section 9.11);

  • Use of the MasterCard Mark (section 9.10);

  • Charges to Cardholders (section 9.12.2);

  • Minimum/Maximum Transaction Amount Restrictions (section 9.12.3); or

  • Prohibited Transactions (section 9.12.4),

The Corporation will notify the acquirer of the violation and request that it take action to ensure that the merchant discontinues promptly, and in no more than 10 business days, the violative practice. A notification by the Corporation of a violation at any one merchant location requires the member to ensure that the practice is discontinued at all locations covered by the merchant agreement(s).

9.5.2 Assessments

If the Corporation’s staff becomes aware of any merchant or any DSE in violation of section 9.15 of these rules, the Corporation may identify and advise the acquirer of such violation, and may impose an assessment for noncompliance of up to USD 100,000 per individual violation, with a maximum aggregate assessment of USD 500,000 for additional or continuing violations during any consecutive 12-month period.

In addition, if a merchant or any DFS is determined to be in violation of section 9.15, or if a member is determined to be in violation of section 3.7 of these rules, and if such violation results in compromised account information, the acquirer must comply with the requirements set forth in section 5.12 of the Security Rules and Procedures manual.

C. Furthermore, the “Frequently Asked Questions” portion of the website maintained by MasterCard International Corporation directs a consumer to “Please complete and Submit the Merchant Violation form to report a merchant/retailer that did not accept your MasterCard card.” The Merchant Violation form asks the consumer to:

Provide the following information if you have experience a problem with a merchant/retailer who displays the MasterCard brand mark (logo) at their store location but would not accept your MasterCard card for a purchase. Or for a merchant who refuses to accept payment below a certain dollar amount with your MasterCard card.

The end of the Merchant Violation form also asks the consumer to delineate the type of violation as either of the following:

  • In order to make a MasterCard purchase, the merchant/retailer required a minimum or maximum amount.

  • The merchant/retailer is adding a charge for using your MasterCard card.
  • The merchant/retailer required identification.
  • A merchant/retailer displaying the MasterCard decal in their window refused to accept my MasterCard card.

VISA U.S.A. INCORPORATED

A. As per page ten (10) of the “Rules for Visa Merchants: Card Acceptance and Chargeback Management Guidelines,” the following Visa Rules are imposed on merchant conduct:

Dollar Minimums and Maximums – Always honor valid Visa cards, in your acceptance category, regardless of the dollar amount of the purchase. Imposing minimum or maximum purchase amounts is a violation.

No Surcharging – Always treat Visa transactions like any other transaction; that is, you may not impose any surcharges on a Visa transaction. You may, however, offer a discount for cash transactions, provided that the offer is clearly disclosed to customers and the cash price is presented as a discount from the standard price charged for all other forms of payment.

[Note: As per the disclaimer appearing on page four (4) of the “Rules for Visa Merchants:”

This guide contains information based on the current Visa U.S.A. Inc. Operating Regulations. If there are any technical differences between the Visa U.S.A. Inc. Operating Regulations will prevail in every instance. Your merchant agreement and the Visa U.S.A. Inc. Operating Regulations take precedence over this guide or any updates to its information.]

B. Furthermore, the “Ask Visa” portion of the relevant website provides the following:

Minimum Purchase
Visa merchants are not permitted to establish minimum transaction amounts, even on sale items. They also are not permitted to charge you a fee when you want to use your Visa card.

If you run into a problem like this with a merchant, please notify the financial institution that issued you your Visa card. These institutions have access to the appropriate Visa rules and regulations and can help you document and file your complaint. You’ll find their address and/or telephone number on your Visa statement. Their telephone number may also appear on the back of the card itself.

AMERICAN EXPRESS

“As an end note,” writes Erik, “I did an exhaustive search on the American Express website and found no information on the subject. Apparently they don’t care enough about these issues to inform consumers what merchant conduct is acceptable by way of the agreement. I called American Express twice. It took three minutes each time to reach both Fredrick and Marlin respectively. Each persona possessed a noticeable accent so I can’t even be sure I got their names correct. As with Fredrick I asked four questions. First, does the typical merchant agreement permit merchants to require that consumers make a minimum purchase in order to use an American Express card? Fredrick told me some merchants may do this and typically do so to cover or pass along the fees American Express charges the merchant for use of the service. He also stated that while the merchant is not supposed to do that and the agreement the merchant signs says as much, American Express cannot enforce this requirement because it may not be practical and/or the merchant is acting as a private entity. I wasn’t sure what he meant by this but at least I learned that the American Express merchant agreement should contain a provision precluding this type of merchant conduct. Second, I asked Fredrick whether merchants may charge consumers a fee for using their American Express card. Fredrick was noticeably more concerned and quickly told me that consumer in those situations should promptly call the customer service number ( i.e. 1 (800) 528-4800) and provide the merchant’s name and address. Presumably you’d want to provide the merchant’s telephone number too but I didn’t probe any further. Third, I asked Fredrick whether I could obtain a copy of the American Express rules and regulations in the merchant agreement, etc. that covered these issues? He told me no. I asked whether they were available online? He politely put me on hold and returned 3 minutes later. He explained such information was not available online and any consumer complaints should be directed to the customer service number. We parted ways and I thought about the experience for a minute. Fredrick didn’t seem fully confident in his responses so I called again, hoping for some confirmation or clarity. I got Marlin instead. I didn’t even get through the first question. Maybe I didn’t explain myself clearly enough but when asked whether merchants can requirement a consumer to make a minimum purchase to use their American Express card, Marlin simply said “There’s no such thing here with American Express.” Go figure. I thanked him for his time and hung up.”

Comments

Edit Your Comment

  1. Harlan says:

    Interesting. It’s quite clear what a merchant should do. Allow credit card payments on everything, but post a sign saying “50 cents off all purchases made with cash” or something like that to cover the credit card fees. It looks like most of what the card companies are worried about is preferential treatment to the other cards, not so much about cash. Almost like… anti-competitive collusion…! From the credit card companies? Who would have thunk it…

  2. American Express doesn’t have to worry about this maybe because if you’re using an AmEx it’s probably safe to assume that a) a minimum purchase wouldn’t be a strain on your finances and b) you’re probably buying something that’s more than a few dollars anyway.

  3. speedracer says:

    Thank you for following up on this.
    What I am to do?
    Simply write a note to my financial institution?
    That doesn’t help me make my purchase, and I guess (at least around here) they can and sometimes do “reserve the right to refuse service.”

  4. Ben Popken says:

    You might consider stating this fact to the person behind the register and see what happens.

  5. speedracer says:

    Ben,
    Thank you again for the follow-up.
    I read with interest the more recent updates. I just don’t see how “stating” this fact will help things.

    I hate being a dick.
    I just want my soda and candybar!!! (without having to use cash)

  6. ValkRaider says:

    - “American Express doesn’t have to worry about this maybe because if you’re using an AmEx it’s probably safe to assume that a) a minimum purchase wouldn’t be a strain on your finances and b) you’re probably buying something that’s more than a few dollars anyway.”

    Not true. American Express carries many “normal” credit cards. We shop almost exclusively with American Express cards because of their Delta Skymiles card. Since I travel for work, it makes sense to keep racking up the miles so that I can get a free vacation for the whole family.

    Also, many companies use American Express as corporate cards, and oncorporate travel you have to pay with the card – or you are forced to do some long delayed re-imbursement procedure.

    AmEx is no longer a status symbol like it once was…

  7. claire333 says:

    Even if the stores let you buy that pack of gum with your credit card, you would just be paying extra. The credit card companies themselves have a minimum charge for you, usually $1. If you buy something under that, you would get charged the $1 anyway.

  8. claire333: Do you have a source for that information?

  9. macaddictg4 says:

    clair333: In my experience this is not true. Never have I noticed being “overcharged” to a dollar when paying less, and I use my credit cards for everything as I don’t even carry cash.

    Also, as far as American Express goes, I have read here and on other sites that AmEx “discourages” these practices (minimum charges, transaction fees) but does not outright prohibit them. AmEx DOES however prohibit discrimination against their cards by the merchant, meaning that if the merchant doesn’t have a transaction fee or minimum amount for their Visa and Mastercard purchases (since they can’t), they can’t for AmEx purchases either as this would be discrimination against the card.

  10. LBWalker2 says:

    As far as “bringing it to the clerks attention” (posted by Ben P), I was just at my local store today and they refused to allow me to purchase the items I had brought to the counter with my Visa/debit that amounted to approximately $3.50. I brought to the stores attention that this was not “legal” (as I had just recently heard the story on the news)and I was told flat out that I was wrong and I was required to either leave without my purchases or peruse the store for something additional to equal $5+. The heat, gas prices (to run to another store) and truly needing the items caused me to go in and find and additional $2 worth of items and stand back in line to purchase my items.

  11. marnen says:

    I have created a list of merchants that impose minimum purchase requirements. At the moment, it’s at [minimumpurchase.livejournal.com] , but there will soon be a more sophisticated website with a searchable database and all that good stuff. Join the fight!

  12. StevieD says:

    @marnen:

    Grow up.

    Most of those businesses are mom and pop restaurants, which means the average bill is far above $5 or $10. The merchant is just trying to protect themselves from the customer whom orders a single diet drink, sits at a table for two hours at peak dinner hours and then stiffs the teenage waitress for a tip.

    The merchants could implement an across the board $5 or $10 minimum. A minimum that must be paid by all customers even those paying cash. Such minimums are perfectly legal. Of course then you would whine about the minimum purchasing requirements. The merchant could just charge $10 for everything on the menu.. and give you an $8 discount when you purchase a meal with your $10 drink, but that would be a book keeping nighmare for a small business.

    The bottom line is credit card companies raise merchant rates at will, add surcharges at will, and screwover the merchant on stolen credit cards. So why can’t the merchant try to maintain a profitable business?

    Don’t like showing your photo ID? Tough. Stolen credit cards cost merchants more than employee thefts and shoplifting combines. I don’t want to know your personal details, I am hoping the picture is a person of the same sex and race as the person on the other side of the counter and the names on the credit card and photo ID kinda of look the same.

    Don’t like a minimum purhcase? Tough. $3.17 is my current Visa fee for ANY credit card tranasction. Buy something for $2 and charge it to your credit card and I (the merchant)am out $1.17 plus the cost of the goods. Damn right I am going to charge a minimum transaction amount.

  13. CommentHarry says:

    Here is he bottom line – any store that sets a minimum purchase amount for credit card purchases does so in violation of their contract with the credit card companies who have a restriction on this practice. And some have rather stiff fines to the tune of several hunderd thousand dollars for violations. That would certainly eat into the store profit more so than taking a $2.00 sale with a $3.17 fee [retail costs; not adjusted for markup and tax advantages].

    Any store that sets a minimum purchase amount for all customers regardless of payment is also in violation of their credit card merchant agreement because there is still the improper setting of a floor minimum for the credit cards. This is still a violation of the merchant agreement even though check and cash customers have the same floor limit – since there is no contract stating that the store cannot have a floor minimum for cash and check transactions.

    Fees for credit card transactions are a store operating cost and, like payroll and electricity, the store has to pay these costs of doing business. It may well be that a store has to raise prices on smaller “convenience” items to discourage small purchases [this is a convenience price, common in convenience stores]. Maybe the store elects not to carry low cost items to avoid having the cost of the sale exceed the profit earned. Maybe the store has to reduce overhead to afford the fees associated with accepting credit cards. Maybe the store should decide not to accept plastic at all.

    If any store owner does not like the fees associated with taking credit cards then any such store owners should not voluntarily agree to take credit cards in their stores.

    It is not the customer’s fault that floor minimums are prohibited or that the store owner has agreed to take credit cards under an agreement that prohibits floor minimums.

  14. Bill55 says:

    Harry, you probably complain about how high prices are. You don’t mind making Visa and MC rich enough to buy stadiums; however, don’t let your neighbor who runs the mom and pop store make a decent living. People like you only care about yourself. I too like using my credit card on big purchases, but I don’t get off on screwing a small vendor with anything under a $20 purchase. Think of others for a change.

  15. alkone123 says:

    No one forced mom and pop shop to accept credit card. If a store *chooses* to sign agreements with CC companies they should follow those agreements. How can you argue that it costs _ amount of money for transaction therefore customer should be required to obey by illigally set minimal charge. NO! store CHOOSES to take credit card to maximize their profits. They cannot have an egg and eat it too. Bottom line is charging minimal fee is dispicable and stores should be fined accordingly

  16. Wormfather says:

    It’s called the cost of doing buisness people.

    My company grosses about $100M a year in credit card buisness, we pay about $3M in credit card fees. Just how it goes.

    Set your sales margin’s accordingly.

  17. GoatHerderEd says:

    StevieD, You are getting screwed by whoever does your credit card processing. PayPal charges around $0.30 + 3% of the transaction per transaction. Depending on the amount of business you do and the type of transaction, you can get it to as low as 1.9%. For a virtual terminal, it’s an extra $30 a month.

    Bill, I do not think Harry “gets off on screwing small vendors”. I doubt he is buying a pop to screw the store, I bet he just wants a pop, and the store advertises it accepts Visa/MasterCard as a form of payment.

    All, Cash is not a “fee free” transaction. You need a cash register, counting equipment, the time it takes to give change and count the cash, and sometimes a service like Brinks to transport the cash. Also, there is a lot more risk with cash including incorrect counting, stealing/shrinkage, and counterfeit bills. Credit card dollars are nearly instant, and require much less back office work.

  18. marnen says:

    StevieD:

    You are telling me that you are willfully violating the rules of the merchant agreement you signed — of your own accord — with the credit card company. That’s inexcusable. If you don’t like the terms of the agreement, get it changed or don’t sign it. There are plenty of businesses out there that don’t take credit cards, and they seem to do pretty well.

    What’s ironic is that you’re saying you do this to save yourself money, but you’re costing yourself business and goodwill in the long run. I won’t patronize businesses like yours, and I daresay many others feel the same.

    Finally, you claim that minimum purchase requirements are perfectly legal. Think again. As long as you have such requirements, you’re in breach of contract with the credit card company, and they could take you to court, sue you, and most likely win.

  19. Anonymous says:

    A few stores I have been to have done away with CC/Debit transactions entirely. They purchased an ATM and put a $2 fee on it. problem solved for the most part. more than a few customers have walked out as a result but in the end they have more money from the fees.