Why Do Some Stores Have Credit Card Minimums?


I’m sure you’ve been in a mom-and-pop shop at one time or another and you’ve seen a sign saying that there is a minimum purchase amount if you’re using a credit card. Why do some shops do this, is it legal and how can you get around it?

Why the Minimum?

It costs money to take credit cards. The average credit card processing cost for a retail business when a card is physically present is 1.95% – 2%. The cost to process a card when a card is not present (over the phone sales and online sales are the best example) is about 2.3% to 2.5%. Looking at the interchange fees and other processing fees, we can break down the cost:

  • For card-present transactions, there is a 1.6% plus a 10-cent transaction fee and a monthly merchant fee of $5 – $15 for each type of credit card processed. VISA and Mastercard typically get bundled together in monthly charges and there is a separate charge to process American Express cards and Discover cards — reasons why some merchants only accept VISA and Mastercard.
  • Card-not-present interchange fees are 1.9% plus software charges for online gateways (typically $10-$15/month plus a 1-to-8 cent per transaction fees). The reason card-present fees are lower than card-not-present fees is because there is greater risk for fraud with these types of transactions.

The lower the average size of a transaction, the higher the amount of transactions processed, meaning the higher amount of transaction fees incurred by the business. Let’s say you have two businesses, Business A, whose average purchase amount is $100 and another Business B whose average purchase size is $5. To make the same money, Business B has to pay $.08 x 20 = $1.60 in transaction fees, where Business A only pays $.08. Lower average transaction size equals more cost to process credit cards.

Some rewards credit cards have even higher interchange fees than regular credit cards, so while racking up charges to gain points benefits you, it can cost the merchant dearly. US Card issuers Visa and Mastercard make over $30 billion dollars a year in interchange fees, according to Wikipedia.

Minimum Credit Card Charges under the Law

Until 2010, the Durbin Amendment prohibited minimum credit card charge restrictions. In addition to the law, banks frown on the practice of minimums because they collect the fees for the credit cards charges: merchants imposing a minimum loses transaction fee revenue that goes to the banks. Card networks like VISA and Mastercard even set up methods to turn in violators in the days of Durbin. Small businesses getting hammered by fees banded together and asked for protection under the law. They were successful. Tucked into the Dodd-Frank Wall Street Reform and Consumer Protection Act, an 848-page legislative bill, minimum credit card charges up to $10 gained legal status. The law went into effect in July of 2010.

The details: merchants can set a credit card minimum purchase of up to $10, as long as they treat all cards the same. In addition, the Federal Reserve can review and increase the minimum at a future date. $5 seems to be the most common minimum set.

Under the law, you are allowed to charge minimums for the use of debit cards, but card networks (VISA and Mastercard) will not allow you to do this, as they want to collect on those transaction costs. Debit card processors even encourage consumers to report merchants who require a minimum charge.

What You Can Do About Credit Card Minimums

If you were unaware of the changes in the law as it relates to credit card minimums, you’re not alone. There was very little news coverage when the law went into effect (other provisions of the bill got all the press), and there has been little outrage or public commentary over minimums.

If you’re a cashless shopper and you want to make a credit card charge under the minimum, you’ll need to buy something additional. If you’re one of those people who operate on a cash-only basis, you can just pay with the money in your wallet to avoid minimums.

Retailer Response to the Law

Some retailers are hesitant to impose the minimum for fear of driving away customers. In reality, there are plenty of merchants that don’t impose the minimum, even retail chains or restaurants with lower-priced items. Most fast-food restaurants accept credit cards for their menu items, most of which are under $10.

Some retailers, especially those with the bulk of their charges under $5, were happy to impose the minimum. According to Doug Kantor from the National Association of Convenience Stores, “From our perspective, we haven’t seen a big negative reaction from customers. They understand. ” Gas stations and convenience stores, where small dollar amount purchases are regularly made, have very small profit margin. Paying even a few cents matters.

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