Can I impose a max on credit card customers?
Your Business Credit
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.
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Dear Your Business Credit,
Can a business limit the size of purchases that customers
can charge to their credit card? We sell custom cabinets that can cost $70,000
or more. When customers, say, use American Express, the fees can really add up
for us. And not knowing what method of payment will be used sometimes catches
us off guard in pricing. -- Gena
It's smart to examine every aspect of your overhead,
including credit card processing fees. Even seemingly small charges can eat
away at the profits of a small business over time.
To answer your question, I turned to J. Craig Shearman, vice
president of government affairs and public relations for the National Retail
Federation (NRF) in Washington, D.C. It appears that you are free to impose a ceiling on consumers' credit card purchases.
"As far as I am aware, there is nothing in federal law
that would prevent a merchant from setting a maximum payment," he said in
an email. However, he noted that the NRF does not track everything that happens
at the state level. You might want to check into state laws, perhaps by
contacting your state attorney general's office, to find out if there are any
additional laws that apply in your area.
That said, Shearman says he has not heard of any merchant
setting a maximum payment for purchases. To me, that's not surprising. Imposing
an inconvenience, especially for large purchases, could potentially cause
customers to go elsewhere.
Before setting a limit, I'd try to get an understanding of
why customers are using credit cards to buy your cabinets. Is it because they
have not saved cash to pay for them and view the cabinets as a big purchase to
be financed over time? If almost none of your customers are paying by check or
debit card, it's possible that they can't afford to buy the cabinets without
credit. If that turns out to be true, you may find that some will not want to
pay for any part of a purchase above your limit in cash -- and will instead
find another cabinet supplier. You may be better off raising the price of your
cabinets slightly so that you maintain your profit margins when customers use a
card with higher swipe fees.
Being short on funds may not be the only reason for
consumers to finance your cabinets. Even if your customers have saved cash to
pay the bill, they may not want to do that. Some might want to earn mileage
points or other rewards when they make a large purchase. A $70,000 purchase can
result in a lot of points. Or they may feel more secure knowing that if they
are not happy with the purchase and want to dispute the charge that they can
turn to their card issuer to intervene on their behalf.
In response to your example about fees associated with American
Express cards, I asked Shearman if it is possible to impose a maximum purchase
on consumers using cards from one issuer and not others, such as Visa or
"I have not heard of anyone seeking to do that or any law
affecting it one way or the other," he replied. "Since Visa/MasterCard swipe [fees]
can go as high as 4 percent, I'm not sure that there is enough of a difference
in the fees for there to be a point to it."
However, he noted that AmEx does have some provisions in its
contracts "to the effect that you can't impose conditions on AmEx that you
don't also impose on all other cards," he said. "You would have to check with
them to see if it would apply in this situation."
As Shearman notes, card company contracts with merchants
play a major role in regulating how they are used. The most recent notable exception
is the provision that allows retailers to impose a $10 minimum purchase requirement for credit card customers. That was ushered in by the Dodd-Frank Wall Street
Reform and Consumer Protection Act signed into law in 2010.
"Before that was passed by Congress, card companies
contractually prohibited a minimum charge but there was nothing 'illegal' if a
merchant did it,'" Shearman noted. "Congress gave merchants the right to have a
minimum purchase but Congress did not 'make it legal' since it was never 'illegal.'"
That said, even if it's legal to impose a limit on how much
customers' may buy on their credit cards, it's not a decision to take lightly. Since
losing even one sale may cost you a substantial amount of revenue, it's
important to understand your customers' behavior -- and any contracts you've
signed -- before you change any policies. Paying attention to the payment
options that other businesses in your area offer for similar-sized purchases
may help you make a more informed choice.
See related: Can my business require a minimum purchase for credit cards?, Can my small business afford to stop accepting AmEx?, Swipe fee battle renewed after court ruling
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Published: September 9, 2013