Sunday, March 11, 2007

Credit Card Charge Minimums

QUESTION: Is it legal or allowed for a store or restaurant to require you to spend at least X dollars if you want to pay by credit card?

I was at a neighborhood pub the other day and overhead a disagreement between a patron and the bartender. The patron had a single beer and wanted to pay for it with his VISA card. The bartender informed him that there's a ten dollar minimum for credit card charges. He countered that this was not legal, and expressed frustration that this requirement was not posted anywhere. The bartender held firm, and the guy left after paying ten dollars for a five dollar beer.

I see this taking place at different places I visit. Grocery stores, the neighborhood dry cleaners, bars, etc. It made me wonder: What ARE the rules for credit card charge minimums? So, I did a bit of research.

ANSWER: No. It is not allowed for VISA and Mastercard transactions. It's a violation of the agreement the merchant (store or restaurant) entered into with VISA and Mastercard. It's less clear what the rule is in the case of American Express.

Here's what I found:

VISA -- According to their website, merchants that accept VISA are "not permitted to establish minimum transaction amounts, even on sale items."

Mastercard -- According to their website, merchants may not ever require a minimum purchase amount when paying with Mastercard.

American Express -- I wasn't able to find specific information by way of a cursory Google search. I found info that suggests it's against policy in Australia.

This accountant website clearly indicates that it's against policy for merchants to require a minimum purchase amount for a VISA or Mastercard transaction. It also says that it's less clear in the case of American Express.

Penn State (for some unknown reason) issued a press release in November, 1999 that explains that merchants can't require minimum charge limits with VISA and Mastercard.

I understand why a merchant would want to require a minimum purchase amount for a credit card transaction. Credit card fees, especially for small merchants, are significant. Some merchant agreements (the agreement between the store and the bank) have per-transaction minimums that range from $1 to $6 plus. That means you can end up under water if somebody uses a credit card to pay for a twenty-five cent stick of gum. However, if you want to take credit cards, you have to agree to abide by their policies, and these are their policies.

Some merchants choose not to take credit cards, and that's absolutely their right. But lots of others choose to take credit cards, because they like the convenience. In exchange for sharing some amount of money received for every transaction, the merchant gets an easy, single point of record keeping for all or most of their transactions, and they end up not having to keep as much cash on hand. If you don't take credit cards, especially if you're a restaurant or a bar, you miss out on the opportunity to serve a large segment of the population who no longer walk around with cash in their pockets.

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