We’ve posted a lot of stories of businesses requiring customers who pay with a credit card to make minimum purchases, or pay a surcharge, or show ID. And as we’ve repeatedly said, the businesses’ merchant agreements with the credit card companies forbids these practices. A reader wrote in to argue that this might not be true, as many businesses contract with third-party credit card processors, and are not bound by the merchant agreement. So we did some investigating.
There’s a lot of information below, so here is an executive summary:
- Regardless of who the merchant uses to process credit card transactions, merchants that add a surcharge or require a minimum purchase to accept a Visa or MasterCard credit or debit card are violating their merchant agreement, and you should report them to the bank that issued your card.
- American Express does not forbid minimum purchase requirements, but they require parity with the other credit cards, so a minimum purchase requirement just for American Express, but not for Visa, is not allowed. American Express does not allow surcharges, unless they are assessed as a convenience fee…
- Convenience fees are allowable surcharges for specific types of payments, generally to schools and government entities (like taxes or fines).
- Asking for ID is not prohibited, but refusal to show ID cannot, by itself, be a reason for the merchant to halt the transaction.
We contacted Visa, MasterCard, and American Express about their merchant agreements and asked for clarification. We also spoke with a friend who owns a local bar that, like many other bars in the area, displays a sign requiring a minimum purchase for credit card use. He reviewed his merchant agreement to see if there were any loopholes or discrepancies with what the credit card companies post on their websites. And we asked the companies whether there were any exceptions for educational or government entities, as we’ve received reports from readers that their colleges were charging a “convenience fee” to students who paid with credit or debit cards.
Does this only apply to credit cards? What about when I use my [Visa, MasterCard, American Express]-branded debit card?
We’ve mentioned this before, but it’s worth repeating: the merchant agreement applies to a consumer who uses a debit card with a major credit card company’s logo on it, regardless of whether he signs it or uses a PIN. Note that this is for things like minimum purchases, surcharges, and requests for ID; a credit card often offers additional consumer protections for chargebacks, warranty extensions, and buyers assurance plans.
What’s the deal with third-party processors?
After we posted about a McDonald’s adding 25¢ to credit/debit card purchases, commenter Corporate Shill wrote in to tell us that many small businesses, like bars, use a third-party credit card processor to offset the expenses of purchasing credit card terminals and accepting different cards:
3rd Party CC Processing Companies offer Merchant Bank services to small businesses that cannot afford to offer CC services to their customers, or to businesses that have been denied CC processing by Merchant Bank.
(In simple legal terms the 3rd Party Companies will act as a straw man between the Merchant Bank and the business that actually accepts the CC from the customer.)
In addition to offering Merchant Bank services the 3rd Party CC Processing Company will often provide the data terminals and supporting equipment at a very low cost or even free to their clients. The data terminals, because they are accessing the 3rd Party network rather than an actual Merchant Bank network, can be programmed to accept an even wider variety of CC’s and perform other functions, such as check clearing.
We asked the credit card companies whether a merchant that contracts with a third-party processor still has to adhere to the merchant agreement: MasterCard simply said “Yes,” and American Express said that these merchants still sign a contract with the credit card company regardless of how they sign up for card acceptance. Corporate Shill disputes this, saying that using a third-party processor does not require the merchant to sign an agreement with the credit card companies, but the companies, at least American Express, disagree.
Are government and educational entities exempt from these rules? What is the exception for convenience fees?
MasterCard says:
We allow a “convenience” to be charged by certain educational institutions and public sector merchants, including:
- Elementary and secondary schools for tuition and related fees, and school-maintained room and board
- Colleges, universities, professional schools, and junior colleges for tuition and related fees, and school-maintained room and board
- Local, state, and federal courts of law that administer and process court fees, alimony, and child support payments
- Government entities that administer and process local, state, and federal fines
- Local, state, and federal entities that engage in financial administration and taxation
- Government Services; merchants that provide general support services for the government
In addition, a merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used. For example, a merchant that has a website that accepts MasterCard, Visa and direct debit to a checking account as its three forms of payment, may ask for a surcharge IF the fee is applied to all three methods of payment. The same applies to a merchant that has a physical store that accepts cash, checks, MasterCard and Visa. The store can charge a fee as long as the fee is applied to all four methods of payment.
American Express says such fees are only allowed “in very limited industries, for example, taxes.”
Can a merchant ask for ID with I pay with a credit card? Can I refuse to show it?
We’ve addressed this before, too, and it also bears repeating, along with a little elaboration from MasterCard: “However, to be clear, the MasterCard rule does allow merchants to ask for ID. Our rule prohibits the merchant from refusing to perform the transaction solely on the basis of the cardholder refusing to provide the ID. (If the merchant asks for ID and the cardholder refuses, then the merchant can either perform the transaction or call their acquirer for direction.)”
That being said, this isn’t going to help you when you’re out of cash and the guy at the convenience store won’t let you charge that can of Drank. But reporting these violations, to the credit card company, to your issuing bank, and to us (preferably with pictures), will draw enough attention to the merchant that it will, hopefully, change its way.
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@Hate_Brian_Club: Around here, there’s no shortage of locally owned businesses that adhere to their merchant contracts, so your contention that I’m killing off local businesses by preferring to shop places that are convenient for me is mistaken.
But I don’t understand why the store gets to make decisions based on practical capitalist principles and consumers don’t. I understand that it’s tough for small businesses, but it seems like that the argument is that customers have more obligation than business–that business doesn’t have an obligation to make things convenient for customers, but customers have an obligation to support a business that inconveniences them; that businesses have a right to handle their finances in ways that keep them as profitable as possible, and customers don’t. And I don’t accept that.
Setting aside the contract breach for a moment, if a business were to decide that it’s more profitable to add the fees and lose a few customers then to go fee-bare and retain those customers who object, I don’t object to that–it’s acknowledging the free agency on both sides. But that doesn’t seem to be what you’re advocating.
Here in FL, we also have Statute 501.0117:
[www.leg.state.fl.us]
“A seller or lessor…may not impose a surcharge on the buyer or lessee for electing to use a credit card…”
Cash discounts are allowable.
So, in states that do not outright ban surcharges for the use of a credit card, any merchant can apply a “convenience fee” for using a credit card, and it would be legit.
In my state (Maine) requiring a minimum is against the law. So it is not only a merchant agreement (contract) issue but a legal one as well. It would take going to the credit card companies and having the law changed to make merchants be able to require a minimum.
atleast that place sells Flying Dog.
I used to swing by a coffee shop every day on my way to work. It was a family owned place (Sippers on Gate Parkway, Jacksonville – if you’re interested!).
Everything about this place just screamed “we like our customers and want to see you come back”. Little touches like putting a little sticker over the hole so hot coffee doesn’t slosh out while you’re driving.
Trouble is, I typically would only get a simple coffee, at about $1.50, and I rarely had cash.
So rather than dick me about with minimum purchase fees, they started me a tab. Settled up every week or so. That shaved time off my morning routine, saved Sippers from racking up fees on my little purchases, and ENSURED that when I wanted something else like a bag of coffee or an afternoon latte, I went back to them.
@Yurei:
Why should I be forced to go to the bank and withdraw cash? All of my money is handled without the physical bank: Direct-deposit for paycheck, pay bills by ePay (checks when forced), manage my accounts and credit card online.
I pay everything with my debit or credit cards. EVERYTHING. I have no desire to go to a bank every week just to save you a few cents.
You can either not accept credit/debit, or complain to the companies about these transaction fees. In the meantime I’ll be happy to a) report you to the companies and b) stop shopping at your place.
Love,
ibanix
Reporting Merchant Violations:
Visa
Phone Number: 1-800-VISA-911 (International: 1-410-581-9994) and you can also call the number on the back of your card
Mailing Address:
Visa U.S.A. Inc.
P.O. Box 194607
San Francisco, California 94119-4607
Online: Your card issuer’s website may let you send them complaints about merchant violations and start a dispute if your were charged a fee to use your card.
MasterCard
Phone Number: 1-800-MASTERCARD (International: 1-636-722-7111) and you can also call the number on the back of your card.
Online: [www.mastercard.com] (Also you may be able to dispute a charge online if you were charged a fee.)
American Express
Phone Number: 1-800-528-4800 (International: 1-336-393-1111)
Mailing Address:
American Express
P.O. Box 297812
Ft. Lauderdale, FL 33329-7812
Online: Login to your account at http://www.americanexpress.com and then click e-mail on the right side. You can also dispute a charge online if you were charged a fee to use your card.
Other Useful Links
Rules for Visa Merchants: [usa.visa.com]
MasterCard Merchant Rules: [www.mastercard.com]
MSNBC Article About No Minimums Allowed: [www.msnbc.msn.com]
California Civil Code Prohibiting Surcharges for Credit Card Use: [law.onecle.com]
Merchant Credit Card Abuses: [www.gofso.com]
Google Answers on State Laws Regarding Surcharges: [answers.google.com]
Good luck reporting a company.
Remember you are reporting a company that is generating fees for the CC company…. VISA, VISA merchant is being bad…. $100, $101, $102 … and your complaint is what?
In a few instances the CC company might squeeze down on a little merchant, but there is just about nothing that will be ever done to WallyWorld et al…. the golden goose is just too profitable.
@EarlNowak: Thought that sign looked familiar. Haven’t been there in a while.
I don’t see a problem. It does not matter if cash transaction are discounted or credit card transaction have an extra 50 cents. It’s the same thing, only wording is different.
So why all the fuss?
Last night, I was at one of my favorite small local stores. This is one place that actually has read their merchant agreement; they’ve put up a sign that they can’t accept unsigned cards, and they don’t have a minimum purchase amount.
As I came in, another customer was buying something small and paying with credit. The sales clerk asked him if he could use cash, because of the expense of credit processing. He said no, and paid with credit, and they processed it despite being a possibly negative-profit transaction.
(Later that night I bought some stuff; the total was high enough that I’d normally put it on a card, but I paid cash instead to counterbalance the earlier customer a bit.)
@EarlNowak: When I saw the Abita bottles I got excited and was curious as to from where the picture came.
If you can’t make your business model work with credit card processing fees, change your business model or don’t take credit cards. You cannot have your cake and eat it, too.
@SkokieGuy: To be fair, it’s hard to avoid Ticketmaster if you want to see much of any show, unless you get lucky on the scalping market. Or have the ability to buy from the venue direct.
@Victo: It’s kinda lawyer-ese (but what do you expect).
This is legal/acceptable:
Soda $1.05 * Cash discount 5%
This is not:
Soda $1.00 (Credit price $1.05)
Inane but accurate. More proof that the inmates are running the asylum.
FYI, some states have passed laws that require ID when using credit cards for payment. So it’s possible they’re asking for ID because they have to. And they really can refuse your payment on that basis.
I quit worrying about minimum transaction requirements once I realized that Visa and Mastercard don’t really enforce them. I just buy the minimum or shop somewhere else. Can’t say I’ve ever run up on a transaction fee, except at my college and various government agencies, but I’ve known for a long time those are allowed.
@Yurei: If you’re not happy with that clause of the merchant agreement prohibiting minimums, then don’t sign the agreement, and don’t accept credit cards. Or just accept Amex. I wonder whether you’d make more money if you just accepted Amex with their higher interchange rate but with a fully legal minimum.
To the author: what’s the difference between just “summary” and “executive summary?” Why would you want to use that buzzword?
@dopplerd: I been saying that for years. I get two tickets in the same envelope, but still have to pay $12 shipping for each. If you buy it from the stand, they still charge you for shipping. WTF?!
Since credit card transactions are sometimes negative transactions, and customers get het up about minimum purchases,
I no longer accept credit cards.
Consumers want us to pay for the pleasure of their company…this is not capitalism. It’s madness. And then to complain about it, seems even worse.
When thinking about this you have to realize that the consumer in this situation is the MERCHANT, not the guy buying gum at the corner store. The MERCHANT is a customere of the credit card company, and that company is screwing him pretty badly.
Consumers getting irate about small businesses trying to stay afloat seems a bit absurd to me, when the large credit companies in question tend to take advantage of, and prey upon, both consumers AND small merchants. This is where the fault lies, not at the counter of your local mom-and-pop bodega.
Can a merchant charge a fee when your card has been declined? In my case I was attempting to pay the company the provides billing for the water and sewer service in a manufactured home community where I own a rental home. I fat fingered my credit card number and the charge was declined. The companies policy is to charge an $8 dollar fee for declined charges, or in this case a simple mistake on the telephone keypad. The automated system did not repeat the numbers I entered it simplied reported that the charge was declined and transfered me to a customer service rep. The merchant also charges an $8 convenience fee when the charge is authorized. So in this case it cost me $16 to pay the bill.
Visa.com
[usa.visa.com]
The above website lists the following 10 states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas as having statutes for A “NO SURCHARGE RULE” FOR CONSUMER PURCHASES.
In these 10 states it is completely illegal to do so.
As a small business owner, if I take a Credit card or Debit card and our transaction is $300, the cost to me is $10.86 plus $.25 per transaction. appoximately. We are a service business and most of our transactions are $1000. We make $110 on a $1000 transaction. So If I have to pay to take a credit card, $36.20 plus $.25 I am down 33% on my revenue, just by taking a credit card. Now you want to talk taking checks, thru Telecheck is even worse. They want $125 per month plus up to 5% per transaction.
I dont think its right for me as the business to pay for the customers’ convenience.
As a small business owner, if I take a Credit card or Debit card and our transaction is $300, the cost to me is $10.86 plus $.25 per transaction. appoximately. We are a service business and most of our transactions are $1000. We make $110 on a $1000 transaction. So If I have to pay to take a credit card, $36.20 plus $.25 I am down 33% on my revenue, just by taking a credit card. Now you want to talk taking checks, thru Telecheck is even worse. They want $125 per month plus up to 5% per transaction.
I dont think its right for me as the business to pay for the customers’ convenience.