Charging a Minimum on Credit Card Purchases

One of the most contested issues in credit card processing is whether a merchant should have the ability to impose a minimum purchase amount on credit card transactions. At one point or another we've all walked into a store to make a quick purchase and after seeing a sign that read "minimum credit card purchase $10," realized we didn't have any cash.

People handle this situation very differently. Some of us shrug and leave to find another store while others let the merchant know that they're not supposed to dictate a minimum purchase amount on credit card transactions.

Merchants set a minimum on credit card purchases to avoid losing money on smaller transactions where processing fees are greater than the profit made on the sale. While it makes business sense to do this, three of the four major card brands specifically forbid doing so and violating these terms can be detrimental to their merchant account.

Visa says "Always honor valid cards in your acceptance category, regardless of the dollar amount of the purchase. Imposing maximum or minimum dollar amounts in order to accept a Visa card transaction is a violation of the Visa rules."1

MasterCard says "A Merchant must not require, or indicate that it requires, a minimum or maximum Transaction amount to accept a valid and properly presented Card."2

Discover says "You may not require that any Cardholder make a minimum dollar purchase in order to use a Card and you may not limit the maximum amount that a Cardholder may spend when using a Card except when the Issuer has not provided a positive Authorization Response for a Card Transaction."3

American Express doesn't specifically mention guidelines regarding minimum purchase amounts but they do publically discourage any practice that would hinder card acceptance. American Express has also gone on the record saying that they don't condone the practice.

Credit card companies discourage minimum purchase amounts because they don't want to lose money when consumers are excluded from using their card. Similarly, merchants don't want to lose money on merchant account fees when customers use their card to make a small purchase. Who's right or wrong is a debate that can go on forever. What matters is who has the power and in this case it's the credit card originators like Visa and MasterCard.

Some merchants will continue to dictate a minimum on credit card purchases regardless of whether the practice is allowed. That's certainly their choice, but there are ways to avoid losing money on small credit card purchases without having to enforce a minimum purchase policy - all it takes is a little creative pricing.

The first and simplest option to avoid losing money on small credit card transactions is to raise prices across the board to offset potential loses. Raising prices will negate the need to institute minimums on credit card purchases but it may hurt business by making prices less competitive. If you're considering this option, be sure to do research to calculate what price increase, if any, your market will allow.

The second way to avoid losing money on credit card purchases without imposing a minimum is to let customers pay for processing fees. Charging customers a surcharge or penalty fee for paying with a credit card is also forbidden by credit card companies, but offering customers a discounted price for paying with cash is perfectly acceptable. There's an article available on this subject at merchantcouncil.org that completely explains the why and how behind offering a cash discount that you should read if you're interested in learning more. For now, here's the gist of things.

Instead of imposing a minimum on credit card transactions, create a dual pricing model. Charge a higher price for credit card payment and offer a discounted price for cash. This type of pricing model will help to promote cash purchases across all transactions, not just small ones, and it will still allow your business to offer competitive prices.

1 - Source: "Card Acceptance and Chargeback Management Guidelines for VISA Merchants", Section "VISA Rules", "Dollar Minimums and Maximums"

2 - Source: "MasterCard Rules" page 125, "Minimum/Maximum Transaction Amount Prohibited"

3 - Source: "Discover Operating Manual", page 26, "Maximum/Minimum Dollar Amounts and Other Limits"

Questions & Comments

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On April 19, 2009 Stephen said:

I find it extremely frustrating that so many merchants are brashly telling me in my face that they have a "Minimum Transaction" requirement in order to accept a valid credit/debit card (with the MC logo). Is there ANY means of enforcing this regulation to the point of slapping these condescending merchants with dizzying fines so that they get the message? I'm fed up with being walked all over, and having the merchant add insult to injury by politely "explaining" that it costs them a fee, when they never complain to the merchant bank about it, who is the one who requires that Visa/MC regulations are abided by (the merchants are "two-faced").

How DO I get a merchant fined so that they know that I mean business and won't be walked all over with regard to my rights as a cardholder. I have learned from a number of sources that the card companies are very lax in upholding these regulations. Are there any other agencies that will better enforce these regulations (with "teeth")?

Thank you,
Steve

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On April 20, 2009 MerchantCouncil said:

Your frustration with merchants charging a minimum on credit card transactions is understandable. As we've explained in this article, merchants impose such minimums to avoid losing money on smaller transactions where the fees to process a transaction are larger than the profit made on the sale.

Visa and MasterCard are the authorities and the proper entities to which you should report a business that is violating their merchant processing agreement. The Card Associations strive to uphold their processing regulations, and you will find that they're responsive to any complaints.

Your complaint will result in the merchant being contacted and first-time offenders will be warned to stop enforcing a minimum purchase policy. Repeat offenders may have their merchant account terminated.

Before you contact the Card Associations to report a merchant that is charging a minimum on credit card transactions, you should consider the merchant's reaction. If they're forced to stop charging a minimum on credit card transactions it is very likely that they'll be forced to raise prices on all forms of payment to cover losses on small credit card transactions. Your frustration over the inability to pay for small transactions with your credit card may become costly in this scenario.

You've noted the merchant has been polite in explaining their desire to cover their processing costs. A suggestion is to politely explain to them that they're in violation of their merchant processing agreement and offer a solution as to how they can avoid losing money on small transactions.

Referring them to our web site would be a good start and there's an article linked below that will explain how they can lessen the impact of processing costs on their bottom line.

Passing Credit Card Processing Charges to Customers