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
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,
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
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