Can my business require a minimum purchase for credit cards?
You may set a $10 credit card minimum, but that doesn't mean you should
Your Business Credit
Dear Your Business Credit,
Is there a legal minimum amount of spending that a business can require customers to make when purchasing with a credit card? And how about debit cards? Is it $2? $3? $5? Or is it different for different business owners? Thanks. -- Puzzled
All merchants are legally able to impose a minimum purchase, up to $10, for customers paying by credit card, under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank was signed into law in December 2010. The minimum must be the same for all credit card issuers and payment card networks. For more details see a summary of the rules published by the Federal Trade Commission's Business Center.
But that doesn't give you the right to impose a minimum purchase on debit cards, even if it's only $2. "The provision applies only to credit cards, not debit cards," noted J. Craig Shearman, vice president of government affairs public relations at the National Retail Federation, in an email message.
The National Retail Federation does not expect a minimum purchase for debit card users to be authorized any time soon. "There is no initiative to seek a minimum purchase amount for debit cards," Shearman said. "The reason is that merchants want to encourage consumers to use debit cards rather than credit cards."
Why? It's usually cheaper for merchants to accept debit cards than credit cards. "When consumers use a credit card, the merchant pays a 'swipe fee' that averages about 2 percent but can be as high as 4 percent," Sherman says. "That amounts to as much as 40 cents on a $10 purchase, and as much as $4 on a $100 purchase."
The swipe fee on a debit card, by contrast, is capped at 21 cents per transaction -- which also is part of the Dodd-Frank law, he said. "We are working in court to have the cap lowered, because the Federal Reserve set the cap higher than Congress intended under Dodd-Frank," he said.
I should point out that just because you can impose a minimum purchase for using a credit card doesn't mean you should. It's very important to know your customers and which ones are most important to the health of your business.
Say you run a small grocery store where you depend on repeat sales from neighborhood customers. There probably have been times when a loyal patron doesn't have cash on hand and wants to buy something small. Imposing the minimum purchase rule on someone like this may backfire. Sure, you may force him to spend a certain amount in the store -- but if he is annoyed about it, how much good will it do your business in the long run? If you have competition down the street that does not impose this surcharge, where do you think your customer will go next time?
It's also important to consider your customers' usual choice of cards. Some customers, when faced with a minimum credit card purchase, may simply reach for a debit card, with no grumbling.
If you're in a business where you rarely see the same customers more than once, imposing a minimum purchase for credit cards may be good for your business. Say you run a convenience store at a gas station off a busy interstate, and customers who are passing through repeatedly try to buy things like a single soda with a credit card. Once credit card swipe fees are subtracted, you may not make very much on those sodas. The benefits of a $10 minimum purchase requirement may offset the temporary annoyance you cause these customers. Knowing your clientele will help you make the right decision about whether to impose such a rule.
See related: Merchants may require up to $10 minimum credit card purchase, Credit card surcharges now allowed, Can my small business afford to stop accepting AmEx?, Swipe fee battle renewed after court ruling
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Published: September 2, 2013
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