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Minimum Purchase on Credit Card Transactions

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Post Minimum Purchase on Credit Card Transactions   Sat Aug 13, 2011 12:20 pm

Transaction fees for credit card purchases have long been a hardship for businesses. Particularly for small purchases, the fees paid to process a credit card transaction may be more than the profit made on the sale, meaning the merchant loses money by doing business. Depending on the value of a sale and the business's profit margin, credit card processing fees may end up costing a business quite a bit of money each month.

Many merchants want to pass processing charges on to the customer to compensate for their loss in revenue. There are two basic ways businesses can go about this, in theory: They can set a minimum charge on credit card transactions (on which the cost of the transaction may negate the profit they'd make), or they can ensure that the consumer pays more for a credit card transaction to offset the loss.

Let's discuss these two options and what the merchant can do.

1. Can I set a minimum amount for card purchases?

The short answer: yes, as long as it's no greater than 10 dollars. And the minimum can only apply to credit cards. You can't impose a minimum on a debit card charge.

Traditionally, business owners have been forbidden from setting a minimum purchasing amount for credit card transactions. It's no mystery why -- card brands like Visa and MasterCard don't want businesses ever discouraging customers from paying by card.

However, this has changed as a result of new laws passed in 2010. The Dodd-Frank Wall Street Reform and Consumer Protection Act was created in response to the late-2000s recession and makes a great deal of changes to financial regulation in the United States. A relatively small part of the act, The Durbin Amendment, is meant to take a bit of power (and, ultimately, money) out of the hands of credit card companies and transfer that to merchants.

One of the many changes the Durbin Amendment makes is that it allows business owners to set a minimum purchasing price on card transactions -- though, again, it can't exceed 10 dollars.

2. Can I charge customers an extra fee for paying with a card?

The short answer: no, but you can give a discount for paying in cash.

While merchants can set a minimum purchase amount for credit transactions, they can't charge an extra fee for using a card -- at least, not exactly.

MasterCard, for example, has the following rule: "A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction. A Merchant may provide a discount to its customers for cash payments."

The other card brands have similar rules. In essence, it's all about presentation. Merchants can't charge an extra fee for using a credit card, but they can charge less to customers who pay with cash or check. To reiterate, since the business saves money when the customer pays with cash, businesses may pass those savings on to consumers. They may not, however, openly penalize a customer for using a card by charging a specific extra fee for card transactions.

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