Requiring a minimum credit card charge: You can do it -- but should you?

Requiring a minimum credit card charge: You can do it -- but should you?

Ever tempted to hang a sign near your register asking that all credit card purchases adhere to a $10 minimum to save on card processing costs? Is that legal or not?

The law has changed recently when it comes to minimum purchase requirements. Here's what you need to know.

Minimum payments: a brief history
If you've been in business for a few years, you may remember a time when you weren't allowed to set a minimum amount for credit card purchases. MasterCard, Visa and Discover prohibited the practice in their merchant agreements; American Express allowed it, but only if it applied to all types of credit cards, which in effect meant that you really couldn't do it.

That all changed on July 22, 2010, when the Dodd-Frank Wall Street Reform and Consumer Protection Act went into effect. One of its provisions allows merchants to set a minimum for credit card purchases -- but only if that amount wasn't greater than $10.

The law doesn't mandate that you set a minimum purchase limit. It only allows you to do so. It also requires that you treat all credit cards the same; if you set a $5 minimum for American Express purchases, for example, you have to set that same minimum for Discover, Visa and MasterCard. 

"It's important to note that this only applies to credit card transactions in the U.S.," says Ted Carr, spokesman for Visa. "The law doesn't cover debit card transactions. Our no-minimum rule remains in effect for retailers that accept Visa debit cards." 

The same is true for MasterCard and Discover debit cards -- there's no minimum purchase requirement allowed by the card networks.

Visa does encourage consumers to report merchants who don't follow these rules.

"There may be some retailers that don't fully understand the law and may try to impose a higher minimum or one for debit," Carr says. "We work with our financial institution partners to investigate possible violations of Visa rules. Usually it's just a matter of education, and retailers that are educated about our rules follow them."

The pros and cons of minimum purchases
If you're a retailer that sells mostly smaller-ticket items -- a take-out restaurant, convenience store or similar venue -- setting a minimum purchase value for credit cards may seem advantageous.

"Obviously the big pro is that it can knock down your credit card fees, which take up an inordinate amount of your sale when it's a very small purchase, like a pack of gum or cup of coffee," says Jeff Lenard, spokesperson for NACS, the Association for Convenience and Fuel Retailing. 

Although there are very different types of payment structures, Lenard says, it's entirely possible that on some transactions, on a very low level, retailers are almost better off simply giving the low-priced items away rather than having the customer pay for them with a credit card. 

"The cost of the card is really that high," he said.  "And that is a challenge as more customers look to plastic to pay for everything.

Still, if your business enforces a minimum payment amount, that could be a turn-off to some customers.

"If you have a minimum payment requirement, you become a convenience store that is less than convenient," Lenard says. "For our channel, you don't want to turn away any business, and you don't want anybody to have a misperception about your store that you're not customer-friendly.

Losing out on a $1 purchase may not seem like a big deal, but it can create a ripple effect.

"If the customer walks out, you don't know if that customer is ever coming back, and you don't know if that customer is hitting social media and telling 100 friends within the hour that you stink," Lenard says.

Ani Collum, partner in Retail Concepts, a company that serves as a consultant to established and emerging retailers, agrees that imposing rules on how customers spend their money is risky.

"You shouldn't be imposing restrictions on customers that keep them from shopping the way that they want to shop in your store," Collum says. "That relates not only to credit cards but also to rules like no food, no phones or no strollers. Customers are busy, and they want to be able to shop on their own terms."

Collum paints a scenario in which a customer buys a lunch that comes to $9 at a store that sets a $10 minimum credit card purchase. "I'm at the register, and I'm embarrassed because I only have a credit card. So I'm looking around furiously for something to buy to meet that minimum," she said. "It's infuriating for customers, and they have so many other places that they can shop. It [credit card fees] really needs to be considered as just part of the cost of doing business."

Placing limits on transactions is even more unwise in an era when brick-and-mortar stores are feeling great pressure from ecommerce sites, Collum added.

Alternative approaches
Instead of setting a minimum purchase limit, Collum suggests that retailers see if there is another way to cover their credit card expenses -- rolling them into the sticker price, for example.

"There may be places where you might potentially have some higher margins, so that you could set prices that wouldn't put you at a competitive disadvantage," she says. "You should also look at all areas of your business to see why that 2-and-a-half percent fee is so make-or-break for you. There are areas that you can cut on the back end to help make up for that."

Lenard suggests a different approach.

"The thing that I've seen work best is some type of middle ground -- talking to the customer directly," he said. In one store, for example, he saw a "Dear Customer" sign that explained the problem with high credit card fees and asked customers to consider paying with cash if the purchase was under $20.

"That is a really nice way to communicate the problem and the potential solution," Lenard said. Without that conversation, customers won't be able to fill in the rest of the story -- and what they do fill in from their own thoughts might not reflect well on the merchant, he added.

See related: Wal-Mart, Target reject Visa-MasterCard settlement. Should your business follow suit?

Published: November 30,2023