Know Your Rights: Credit Card Minimum Purchases

Know thy rights, cardholder

We have all experienced this: you walk into a grocery store or convenience shop, try to buy a much-needed umbrella or pack of Advil, only to be told, your credit card ain’t welcome here, stranger, unless you are willing to spend at least $10 (or some other arbitrary minimum amount). So you are forced to buy something else you don’t really want. Well guess what? Depending on what kind of credit card you use, the merchant may be violating their processing agreement. In most cases, you have the right to use your card, whether it’s for a $1 purchase or a $1,000 one. MainStreet obtained official replies from American Express (Stock Quote: AXP), MasterCard (Stock Quote: MA), Visa (Stock Quote: V) and Discover (Stock Quote: DFS) to see what rights their cardholders actually have. We also got a fresh perspective on this from a merchant, a prominent personal finance blogger and we spoke to some banks (at least we tried to). Some of the answers may surprise you. Photo Credit: Getty Images


On the other hand…

Merchants who accept credit cards typically have to pay a minimum amount (around 15 cents to 30 cents or more) per transaction, in addition to an interchange fee (a percentage of each transaction). How much, exactly, do interchange fees eat up? Roughly 2% of each credit card transaction, although precise numbers are reportedly hard to come by as the fee can vary slightly depending on a number of factors, such as business type, the company’s bargaining power, and so on. So, if you just buy a $1 pack of bubble gum with a credit card, the merchant is losing (let’s say) 30 cents right away, in addition to the two cent interchange fee. This could knock out the store’s profit margin altogether—hence, some merchants are tempted to impose credit card minimum purchase amounts. Of course, there is also the argument that no store is forced to accept MasterCard, Visa, or anything else: they can simply accept cash and pay no transaction fees. But if they choose to take credit cards, they may gain a much wider range of customers, and customers may be willing to spend considerably more since they are buying on credit. Also, the credit card company assumes risk (issuing credit to the cardholder) and handles fraud issues. It also cuts down on the time and energy a merchant would need to commit to handling cash (security, end-of-day counting, transportation, anti-counterfeit measures, etc). Photo Credit: Getty Images


A store owner speaks out

We spoke about this issue to one merchant who runs a small grocery store in lower Manhattan. We agreed not to use his name or that of his store, because he requires a $5 minimum purchase for customers using a credit card. He says the idea of accepting $1 or $2 credit card purchases is, “just a waste of my time.” He went on to confirm that in addition to the credit card services charging him a fee of around 2% of every purchase, he is charged an initial fee of about $0.35. That’s not a big deal when someone is buying a full bag of groceries, but if someone is buying a $.75 candy bar on credit, he makes no money. Photo Credit: Getty Images


MasterCard

MasterCard takes a strong stance against this minimum purchase practice, at least that's what they told us. We heard from Tristan Jordan, Business Leader, U.S. Markets Communications at MasterCard Worldwide, who told us: “As you point out, a merchant must not require, or post signs indicating that it requires, a minimum or maximum transaction amount to accept a valid MasterCard card.  When it comes to MasterCard's attention that a merchant is in violation of one of our rules, we work with the merchant's acquirer to get the merchant back into compliance.  It usually only takes a letter.” If a store is playing games with you, threaten to report them to MasterCard—no store that accepts MasterCard is allowed to require minimum transaction amounts. Period. Photo Credit: thetruthabout


American Express

AmEx, on the other hand, sounds fairly lenient. The company told us: “We don't prohibit minimums but discourage it because it's not consumer-friendly. However, we require parity with other products (so a merchant can't impose a minimum on American Express Cards and not on Visa or Mastercard).” Photo Credit: American Express Company


Visa

Visa told MainStreet in an official statement: “Visa's rules require merchants to always honor valid Visa cards in their acceptance category regardless of purchase amount. When cardholders see the Visa logo, they expect to be able to make a transaction without discrimination. Merchants may also benefit from faster and more convenient transactions, streamlined cash management procedures, guaranteed payment and increased sales. If cardholders experience a merchant who establishes a minimum or maximum purchase requirement on Visa transactions, they should call the number on the back of their Visa card and provide the customer service representative with the name and location of the merchant.” A simple threat to call Visa should convince the vast majority of store owners to allow you to use your card for that $5 charge. If that doesn’t work, call Visa, as they suggest, and report the offending merchant. Photo Credit: thetruthabout


Discover Card

Discover was rather brief with us: “All I can share with you is that this practice is prohibited under our merchant regulations.” When we pressed them further, asking what they’d do if they discovered a merchant in violation, they said that they would “investigate the situation, inform the merchant of any violations to our operating regulations and take appropriate actions.” Photo Credit: thetruthabout


What do the banks say?

MainStreet also contacted two of the nation’s largest banks, Bank of America (Stock Quote: BAC) and Chase (Stock Quote: JPM). Both banks urged us to speak with the card associations, Visa and MasterCard, as the issue of merchant compliance is their domain. They would not comment further. Photo Credit: Getty Images


But is this worth arguing about?

According to Jim Wang, personal finance blogger at Bargaineering.com, this may be a lot of fuss over nothing: “I see this a lot, especially with the recession, and it doesn't affect me at all. Stores need to protect their margins and this is just one of the ways they can prevent credit card transaction fees from eating into their profits. I would much rather be slightly inconvenienced, pay with cash, and have the store stick around than be able to use a credit card and see them struggle or go out of business. I understand it's against the credit card company's policy but I don't really care.” Unhappy with your credit card company? Check out these complaints from 10 angry credit cardholders who have had enough! Photo Credit: Getty Images


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