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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Get Ready To Pay Surcharge Every Time You Pay With Credit Card
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Visa, MasterCard Agree To Let Merchants Add Surcharges To Credit Card Purchases
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This Restaurant Really Wants You To Know Why It Can Now Require $10 Minimum For Credit Card Purchases
@johnva: No I was talking about discrimination in the way that they can refuse service to any one at any time. If you read my whole post you’ll realize I said that I agree that the contract that they signed (willingly) should be upheld.
@Yurei: I feel for you, I really do. My parents are small business owners.
But as much as you might want people to carry cash, very few people do. Especially young people with disposable income. I’m like most folks here. If you don’t accept credit, I won’t shop there.
My parents always accepted the credit card fees as a cost of doing business. Sad reality, yes, but they accepted.
@linus: oh, we take plastic- we have to, no one buy me and my grand parents seems to carry cash these days. But no, we won’t let you charge a dollar on it. I don’t care what the merchant agreement says, they’re the ones making all the money, off of you, and me. they can go stuff it.
@Yurei: A lot of businesses back before credit cards were common offered a line of credit to their regular customers. You could walk in, pick up the few items you needed, the store would put it on your tab, and you’d pay up once a month. It’s been about 10 years since I’ve lived there, but in my hometown we had a video rental store that practically ran that way. The owner knew pretty much everybody in town, and I’d often come in and get a movie and pay for it when I returned it. I doubt that very many small business owners are willing to do this now because they don’t want to accept the risk of those customers never coming back to pay their monthly tab. (Which is basically what the credit card companies are now doing – accepting that risk.)
@Yurei: It sucks that the credit card companies are set up the way they are. I wish people like you and my parents can get the same discounted merchant percentage that McD and others get.
@Alex Chasick:
Well there’s a great solution for the consumer. So then instead of having to endure a surcharge or a minimum nobody gets to use a credit card there at all.
I have about 20 emails back and forth with AUM’s customer support about this. I have never been so frustrated with a company in my life. Reported them to Master Card about a month ago. Yet I am still forced to pay a $7.50 fee if I want to use the internet to pay them. I am referring to the guy’s from this article:
[consumerist.com]
I have actually been emailing them about this for the first time 7 months before that article was published.
@loadedthorn:
…or you could explain you weren’t aware of the policy and ask for an exception or better yet: carry a small amount of cash on you at all times. Does anyone remember, oh, say five years ago when debit and credit cards weren’t so widely spread and responsible adults were expected to carry cash?
My father owns a small business and believe it or not, despite the long hours and hard work people like him put in he’s in no place to be handing over money to a credit card company for every small transaction just because a customer couldn’t be bothered to spend two minutes at an ATM. A lot of family owned businesses operate on small margins and donating a percent of each sale to a mega-corporation tends to put a dent in your profits.
This clears up the 2% fee I was charged for paying state taxes online.
I don’t know where they got the information that pin based transactions are protected by the no-surcharge rule, this is not the case. Pin based transactions are not using the visa/mastercard aspect of the card. A bank debit card with the V/M symbol on it CAN be run through the V/M system and can not be subject to minimum charges or surcharges, but a card ran using the pin, whether it has the V/M symbol on it or not (remember the old ATM cards with no symbol?) are used the same way any other plain ATM card is used and run through a different system. ARCO does not have a V/M card processor, they ONLY accept PIN based transactions and can charge the 45 cents to do so.
As for checking ID, a merchant is NOT protected from chargebacks by asking for ID, in fact, they’re setting themselves up for a charge reversal. The process for a chargeback is consumer says “wasn’t me”, CC co. requests SIGNED receipt from merchant, CC co. matches sig. No match means chargeback. Arguing back with “but I checked his ID” won’t prove anything. Matching every signature of CC owners is a merchant’s best protection. I don’t show ID because I don’t want everyone to see my address when I make a purchase and because I refuse to submit to yet another false sense of security by letting every retail employee check my driver’s license.
@Yurei:
@linus: That it’s too expensive to let a customer charge a pack of gum on his AmEx is a valid complaint, and there’s definitely room for debate whether a minimum purchase requirement should be allowed in the merchant agreement.
But currently, it’s not allowed, and merchants who require them are breaking these agreements.
I guess one of the things I should add that really sucks for some of these businesses is the cost of doing business with American Express. They want 6% of the transaction if the business wants its money ASAP, 4% if the business is willing to wait 10 days to get the money, or 2.5% if the business is willing to wait 30 days to collect the charge. Really?? 6% or 30 days?? Sucks to be the business owner stuck with that decision. I’m not sure how the other processors/banks do it, but this makes me avoid my Amex unless I really need some benefit of that card.
@Hate_Brian_Club: Credit/debit cards have been widely accepted for longer than 5 years. I’m 27 and I do not remember a time when they were not widely accepted. I’ve had a debit card attached to a checking account (that has been used as my main source of payment) since I was 16. That was over 10 years ago, plus I remember my parents paying for a lot of stuff with debit cards (or checks) long before that.
The counter clerk at the Post Office asked me for ID with my Visa this past Monday because the signature on the back of the Visa is faded and hard to read. When I told her Visa said she couldn’t require me to show it, she just laughed and said (in a nice way) “I can do anything I want to.” and we both got laughing good about that because she’s right.
@hellinmyeyes:
And, of course, no close tag. GRR.
@hellinmyeyes: It really depends on the type of business (retail, online, wholesale…). I was recently told that Amex transaction fees were 2.9% and money in our account in 2 days. This is for a business that does not do very high volume credit card transactions.
@Yurei: While I understand your sentiment regarding small businesses, you are also advocating a practice that is very one-sided – don’t dare do it at my store, but feel free to do it to walmart because they’re bigger and they can absorb the cost easier. I actually try to use local small businesses when possible as I grew up in a family that ran a small business and a farm, but I’m also in favor of equal footing and capitalism. I wonder how many customers no longer darken your doorstep due to your policy.
I’ve never run into a problem using my card for one beer or a transaction under $10, because I tell the bartender I’m going to round the total up to $10 using the tip, which they’re usually okay with. If I’m at a place like Cooter Brown’s, well, I just drink more. Or I just drink at bars that my friends own.
@GriffonJames:
First of all merchants CAN get slapped with higer fees for allowing the fraud to occur. Those highter fees are across the board and will last for yearS. At the really obnoxious, frequent fraud award level, 1% of your annual sales for 5 years in higher transaction fees (penalities) versus a couple TV’s on a suspicious CC transaction that was actually fraudulent/stolen is non-win situation for the merchant.
( Is your local mom & pop restaurant or auto body shop going to have this level of repeated fraud? NO. But the Merchant Bank is literally screaming at them about fraud prevention and the potential costs to the merchant specifically to keep them on the defensive. Electronics, Auto Parts etc stores, due to the nature of their stores and price of the products sold, are always at risk for such rampant widespread fraudulent or stolen cards that they could be hit with penality fees at any moment. )
Secondly, if the fraud is especially egregious the merchant can be on the hook for the entire transaction from the start.
Bottom line, consumer is protected from fraud (within limits), but the merchant is always exposed.
@Yurei: I do agree that it’s kind of nasty of someone to walk into a small business and put a pack of gum on an AMEX. But I still don’t believe it’s good customer service for you to refuse the sale. Yes, you might lose a few cents on that (though you’re not going to lose a lot, unless hundreds of people a day do this). But you’re also not alienating customers who might come back and actually give you more business in the future. Maybe you could have a sign that says something like “We ASK that you not use a credit card for purchases under $5 – we lose money on these sales”? You wouldn’t actually be refusing the small sales, but you would be informing your customers about how they impact you. I bet many/most people would be willing to use cash just out of goodwill, and you wouldn’t have to piss people off.
@johnva: I agree with you there. I’ve never been opposed to a minimum transaction for credit cards. A lot of stores also have those “take a penny – leave a penny” trays, and I’ve seen cashiers just grab some change from there to pay for a small transaction rather than running a credit card.
@dopplerd:
You think CC companies are going to slap the hands of Ticketmaster? Hell No, CC speak with forked tongue and they sure as hades ain’t going to piss off one of their golden geese.
@johnva: Smartest idea yet. I’m sure people like my girlfriend, that will put a cup of coffee on her card, doesn’t understand that it’s not really good for the business letting her do it.
Minimum purchases are the bane of my existence. I do not carry cash unless I’m going to a thrift store or someone handed me cash for being such a great guy. Hell, I would be fine with a “convenience fee” (within reason), since running to another store or ATM is far less convenient when I’m already in the store.
Anyone arguing in favor of or defending merchants for having a minimum because of fees is ignoring the fact that the fees should be estimated/factored into the cost of doing business. If they are not doing this, they are not running their store properly — it’s that simple.
You can make the argument that other companies get a better rate, but the store agreed to the terms and conditions.
Clearly they are not losing money on the deal.
@linus: If your parents processed as many credit transactions as McD’s, and others… they could.
@Troy F.:Agreed, this result would be even more inconvenient, I think the ideal outcome would be for the CC company to bring the violation to their attention and explain they can not do this anymore.
@Yurei: But why should I handle my money in a way that’s inconvenient for me? I don’t handle my finances in order to oblige merchants, and I can find enough merchants that are interested in obliging me that I can avoid those that aren’t. The reason the CC companies forbid these practices is because they discourage use of their product. And for many of us, that doesn’t mean we switch to cash, it just means we find someplace else to spend our money. What’s our incentive to shop at an equivalent place that’s more restrictive?
One of the issues ive had is paying my rent via credit card in the past. It’s always included some sort of additional fee (which inevitably makes it not worth it).
Is this in violation of the agreement? Or can they simply get around this by calling it a processing fee or some such?
I was just in the Florida DMV the other day and they have a $1 fee for paying with MasterCard (they don’t accept Visa). But, according to this, it looks like they’re allowed to get away with it. :-/
@Voyou_Charmant:
I sell big ticket stuff. Means relatively low voluem of sales and a really, really high % of CC transactions. I can very easily factor the cost of CC transactions right into my product price. So do my competition because their selling condiditions etc are very similar to mine.
Small mom & pop corner convenience store. Sure they can factor the CC fees into their product prices. Let’s say for a moment the base fee is $0.25 plus 3% of the transaction amount. A $1.00 pack of gum sold by itself should be marked up HOW MUCH to cover the CC fees? What about customers like me that buy the pack of gum, plus two sandwiches, 3 drinks and $50 in gas, how much CC fees shold I pay? Then there is the guy that pays cash for his gum versus the guy that buys 4 sandwiches, 6 drinks plus one pack of gum with cash.
For the really small sales business, with sales rates that range from between $1 to $100, any fair and equitable method of adding the CC fees is a bit difficult calculate. I know I would not want to devise such a system, especially if I was working off of small margins.
BTW, CC companies have different fee structures, they just don’t let everybody graze in the good fields.
@samurailynn:
Arco charges a fee for debit card purchases not credit card purchases, which is legal.
@3drage:
sorry, I meant to reply to 3drage not samurailynn
Having read Consumerist articles about the illegality of credit card surcharges and minimum purchase amounts, and seen the same thing in the Mastercard merchant’s agreement, I contacted Mastercard. They then replied saying that (here in the UK at least) merchants are allowed to have a surcharge that reflects the cost of processing a transaction.
Which I thought was stupid, given that it’s in contravention of their published UK merchant’s agreement.
@floraposte:
Attitudes like this is part of why more and more businesses are homogenized, operated by a skill-less, uninterested workforce and owned by a corporation headquartered in some far-off tax haven. Is carrying $20 so hard?
Like Corporate-Shill mentioned, larger businesses receive better deals from CC companies and can afford for you to put a cup of coffee on your card. It’s not that small businesses don’t want to oblige you – they have to factor in that on top of competing with nationwide retailers they also have to shell out yet again to the credit card companies and deal with the reams of paperwork that comes with the transactions.
@Voyou_Charmant: I never carry cash either. I am more likely to spend (or lose) cash than I am to overspend on my debit/credit card.
With that said… I would much rather have a store say, “you need to purchase a soda along with that pack of gum, otherwise it won’t be profitable for us” than “no matter how much money you are spending and how profitable your purchase is, we are still going to charge you a $1.00 fee that you will get nothing in return for”. A minimum purchase amount allows me to choose another item which will be of use to me later, a surcharge gives me absolutely nothing (except perhaps the ability to make a purchase that I should be allowed to make anyway).
Has anyone tried just charging back the amount of the surcharge? Might be worth trying?
-MBirchmeier
Awesome, fellow Louisianians on The Consumerist. Baton Rouge here. And to contribute to the actual story…
I hate min purchases. I was hiking/walking around at Hodge’s Garden in Florien, La and came up to the gift shop area looking for a Powerade or two. They had a $20 or $25 min purchase requirement and I was cashless (brought just enough cash to get in the gate). To add insult to injury, the water fountain was broken, but I did manage to find a faucet somewhere on the grounds.
From that day forth I’ve made it a point to carry around $20 or so in cash.
SOLUTION, IN THREE EASY STEPS:
1) Provide an essential and popular service.
2) Refuse to take plastic
3) Put an ATM in your place of business
The local pancake place makes such awesome breakfasts that it can get away with this. On any given morning, there are lines out the door with people waiting to get in. They expanded twice last year, and plan to add another 15 tables by the end of this year. Other waffle/pancake joints in town just don’t compare. It’s that good. Everything is made from scratch and/or bought locally, including the syrup. No fake maple “flavored” syrup there (they’d kick Mrs Butterworth’s ass if she came within 100 yards of the place). And yeah, it’s expensive ($15 per person is what I plan for). But yeah, oh yeah is it worth it. People plan their whole vacations around going to this place. But don’t bring plastic, unless it’s your ATM card. Otherwise you’re gonna be extremely embarassed.
The cool part is the menu has transcripts of all the credit card processing company reps’ calls trying to convince him to take plastic. It’s a beautiful thing how he destroys them. They just don’t seem to get the fact that he has absolutely no need for the crap they’re trying to pull on him.
I don’t purchase anything from stores with a minimum. I rarely carry cash as well. Arco here has cheaper gas but charges .45-$1.05 for credit card purchases. Plus they pump your gas BUT you still have to go inside to pay!
Bottom line is minimum charge is bad for business. How many people a day are actually paying for one .25 pack of gum?! Enough for a minimum charge hassle? NO!
Question for those who don’t carry cash: How many of you do it just so you don’t have to lie to bums about not having any change?
If the debit card is ran through as a pin transaction, the merchant can do a surcharge as long as it is not carried over the Visa interlink or Maestro atm network or against state law. If the pin transaction is carried over the Nyce, Star, Pulse or other ATM network the merchant can do a surcharge
My A.D.D reqires that I use cash…oh look! A butterfly! What was I
posting? I also use a check if I remember to bring a pen
@dry-roasted-peanuts: Nice side bennie but I’d rather buy them a sandwich anyways and most decline that.
You’re not harming large merchants when making small purchases. Generally only smaller merchants pay a per transaction charge on top of the interchange fee. So Wal-Mart is likely paying roughly 2% whether it’s 50 cents or 50 dollars.
As far as Arco…they only accept transactions with a PIN. Despite what the original article said, it is absolutely legal to charge a fee when running transactions with a PIN, provided you do not also offer no-PIN transactions.
@dry-roasted-peanuts: That’s not the reason I don’t carry cash, but I have before realized that it was a benefit of not carrying cash.
So, a local gas station now has a cash discount of about 4 cents a gallon. I can’t tell if the prices posted on their billboard are the discounted prices or the regular ones. So, is it allowed to offer a discount for cash with a credit card, even though it’s effectively the same as a credit surcharge? I’m not complaining, the place has cheap gas already and my bank’s ATM is on the way.
ARCO charges a $.45 fee to use a debit card. That is on top of the already high price of gas.
I would have written into the Consumerist with my own recent run-in with a “minimum purchase” amount, but there was no sign posted in the store with this policy. It was only told to me when I went to make my purchase, which was $1.30 under their minimum and included animal crackers for my two year old, who was audibly upset when I had to hand them back and walk out without them.
If they hadn’t laughed at me when I informed them that they aren’t allowed by their merchant agreement to enforce a minimum purchase amount, shoved a candy bar at me and told me to buy that as well and they’d take my card, or if they hadn’t shown an enormous amount of callousness about my daughter crying because I didn’t have quite enough cash on me to cover the crackers, I might not have bothered reporting them.
I can tell other Consumerist readers that the VISA rep that I spoke to was very helpful in taking my report, and it wasn’t a hassle or anything to go through the reporting process.
The funny part of the whole thing is that more than half of my purchase amount (had I completed the transaction) would have been in two boxes of imported tea I picked out SOLELY because I knew I had to use my credit card because I’d gone through more of my cash at the store next door than I’d anticipated, and I’d promised my daughter a (well-deserved) little treat that day after we finished at the first store.
I spent the same amount of money with a different retailer to get her a treat she enjoyed much more than the overpriced crackers, and that second retailer gladly took my credit card in exchange for the goods.
If you don’t like the terms of the merchant agreement, don’t accept that card. But you certainly aren’t allowed to make up your own rules, and I hope that VISA slaps down the retailer whose employees were rude and condescending to me.
I would be more than happy to have a cooter’s meetup to discuss their policies. I about jumped out of my chair when I saw the pix.
@jhazelton: If they add the fee to an existing transaction that you don’t approve (such as after the fact at a restaurant or one of the now numerous restaurants where you don’t have to sign the receipt), file a chargeback.
Check out any Macy’s – at least at some locations (and a friend said nationwide) they are insisting on ID for VISA, Mastercard, and the Macy’s card.
(No additional fees for the identity proctology service).
Personally, I think the merchant agreements with regard to minimum transactions is unfair to the merchant. We should be going after the credit card companies for charging high transaction fees, on small transactions. It’s completely draconian to force a merchant to accept transactions so small, and still charge a fee that swallows up their profit. Yah, the merchant signs the agreement, but what choice do they have? They have a powerful corporation on one side, a self-centred customer on the other, and different large corporation looming over them that will be more than happy to put them out of business. There are some examples of minimum fees here that are outlandish (I’d say anything over $5). But, as I said before, carrying $20-40 in your pocket is a standard of urban survival. It’s like having a spare tire and a flashlight in your car, or a box of wooden matches (strike anywhere) when you go into the woods.
Draconian? A 25 cent fee for a transaction by a credit card company with whom the merchant voluntarily enters into an agreement? Draconian??? The “powerful corporation” forced the merchant to accept the transactions of the “self-centered” customer, when he lacks the cash to buy… say … a single coke. So the merchant charges $1.00 for the Coke, with a profit of 85 cents and then, with the same cold heartedness with which Draco hung the Athenians by their thumbs, the big corporation reduces that profit to a mere 60 cents! I will take your advice and carry 40 dollars in my wallet. Next time I make a purchase, I’m just going to give my wallet to the merchant and let him take what he thinks is fair.