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Some merchants don't play by the credit card rules

What consumers can do when 'minimum purchase' card rules are bent

By Cynthia Diaz

Editor's note: This story, while accurate at the time of its original publication in 2008, has become outdated in regards to minimum purchase requirements. Minimum payments of up to $10 for accepting credit cards were made legal under the Wall Street reform law of 2010. See updated story, "Merchants may require up to $10 minimum credit card purchase." 

While most merchants who accept credit cards adhere to the terms and conditions set forth by credit card issuers, there are retailers who violate credit card issuer agreements. It's up to the consumer to know when those rules are being broken, and to decide whether to make a fuss about it.

What to do when merchants have minimum credit purchase limitsWhy do merchants break the rules?
Why do some merchants engage in credit card violations? Do they not know the rules, or do they intentionally break them? Some violate the rules to make money at the expense of uneducated customers or to recover merchant fees imposed by card issuers -- both of which are violations of credit card issuer regulations, according to American Express, MasterCard, and Visa credit card operating procedures. (Discover keeps its merchant agreements private.) In other cases, some merchants may be truly ignorant of the rules associated with the cards they accept. Refer to the box below to see what is and what isn't allowed.

Regardless, in the same way cardholders pay interest rates and annual fees and cannot defer card use fees to the merchants with which they transact business, merchants pay fees that cannot be passed on directly to individual consumers. Merchants who attempt otherwise are in violation of credit card regulations and may be reported. In many cases, such violations can be charged back to the vendor by contacting your issuing bank and documenting the incident. "Although MasterCard does not maintain direct relationships with merchants, if a consumer feels a merchant is in violation, the consumer should contact the issuing bank. If that issuing bank reports the violation to MasterCard, we would then work with the merchant's acquiring bank to bring the merchant back into compliance," says Barbara Coleman, MasterCard spokeswoman.

No minimums, no maximums
One of the more common violations, Visa customer service says, is when merchants try to impose minimum or maximum charge requirements on transactions paid with a Visa card. Some rules are not as straightforward. For instance, although asking for supplemental identification is a very common and perfectly legal merchant practice -- vendors are within their rights to ask for identification and proof of a name and signature -- the customer is under no obligation to honor this request, and the vendor cannot make this request a condition of the sale.

As for tacking on fees to credit card purchases, according to a Visa spokeswoman, "To clarify Visa's rules, merchants are not permitted to charge cardholders an additional fee for using a Visa card. However, service stations and other merchants are welcome to offer discounts to consumers who pay with cash or use their debit card with a personal identification number (PIN)."

I'm not crazy about the transaction fees and percentages, but we do everything by the book here.

-- Mark Zias
Owner, Wine and Spirits, Commack, N.Y.

What merchants can do
There are some allowable merchant practices that may appear to be in violation of credit card rules, but are just not widely known. For instance, although adding fees and surcharges to a credit card purchase is in violation of credit card issuer practices, a vendor is allowed to add a convenience fee for specific transactions types. For example, if you are paying your telephone bill at your local sandwich shop -- a service that shop offers, but a business outside of that shop's routine practice -- the shop can charge a convenience fee for processing the utility payment for you. Some other rules are tricky; here are the most common examples:

The good guys
Most merchants operate within credit card issuer rules and are aware of what can and cannot be done, though the maze of regulations can be confusing. For example, Cheryl Lavenhar, owner of Knit -- a shop geared to all things knitting --  in Roslyn, N.Y., warns, "It's illegal to say you don't take a card if you do." Lavenhar also points out, "And you cannot charge for the use of that card." However, those violations aren't technically illegal, though consumers can and should report merchant violations to their credit card companies.

Merchants have a choice
"Although my business needs mostly involve check and cash payments, offering charge cards is a useful tool that helps my business and keeps the economy moving," says Denise Wolfe of Stage Design Interiors Inc. of Locust Valley, N.Y., a company that stages homes for sale. Wolfe adds, "I'm happy to be able to allow customers to have a choice. It's more profitable for me to offer the charge and to stay within the rules of the credit card companies."

Wine and Spirits in Commack, N.Y., agrees to the terms because credit cards are an important payment option for their businesses. Owner Mark Zias says, "Half of our customers use credit cards these days, and purchases here can be expensive. We have to offer the option of credit. I'm not crazy about the transaction fees and percentages, but we do everything by the book here."

Consumer alternatives
Naturally, inappropriate merchant behavior is frowned upon and an American Express customer service representative explains that its merchants pay for the service of accepting American Express from their customers, "If a customer suspects he or she has been treated unethically, they should contact us." According to Visa, "if cardholders have any questions about Visa's rules, they should call the number on the back of their card or visit our website for more information." 

For relatively minor transgressions, such as "minimum $5 payment" signs, the other alternatives are to go ahead and buy another soda to bring the purchase price up over the minimum or decline to do the transaction. After all, the fees the merchants pay are substantial: According to the Merchants Payment Coalition, a retailing group that is fighting to lower interchange fees, they amount to $2 of every $100 spent on credit cards. On thin-margin businesses, small purchases made by credit cards are unprofitable.

"The challenge lies in how to educate consumers that the interchange fees on small purchases made on credit cards is equivalent to stealing the product from retailers -- there is no profit left," says Jeff Lenard, vice president of communications for the National Association of Convenience Stores. "The PIN debit card is less expensive for retailers to process," he says.

Lenard recalls that stating minimum charges on restaurant menus used to be standard operating procedure. "A lot of consumers didn't understand exactly why there was a minimum, but they accepted that. With the increased push to use credit cards for purchases both large and small, the interchange fees are eating up small business profits," he says. 

Consumers who do want to report violations by merchants can contact their issuing banks using the numbers listed on the back of their credit cards, or contact the card company -- Visa, MasterCard, American Express, Discover -- directly.

Credit card practices that aren't allowed Credit card practices that are allowed
  • Advance deposit: If a customer is billed for an advance deposit, that amount must be applied toward the balance of the purchase. The merchant cannot charge the deposit plus the full purchase price.
  • Blank sales drafts: Merchants cannot have cardholders sign a blank sales draft before the final transaction amount is known.
  • Cash: Cash disbursement from credit cards is prohibited by merchants and should only be handled by financial institutions.
  • Cash-only refunds: If refunds are accepted, they must be made to the card used for the original purchase or, if posted, as an in-store credit or exchange. Merchants doing otherwise are in violation. Also, return policies must be disclosed to the cardholder at the time of the credit card transaction.
  • Credit card options: A vendor cannot choose your payment option. If a vendor accepts various payment options, the payment choice remains at the customer's discretion.
  • Delinquency: The merchant cannot bill the cardholder's credit card account for a delinquent account or for the collection of a dishonored check.
  • Discrimination: If a merchant accepts a card, that merchant cannot discriminate from whom it accepts the card -- when properly presented -- as payment.
  • ID: Merchants may ask for additional ID, but this cannot be a condition of acceptance.
  • Personal ID: Several states prohibit merchants writing cardholder personal information on a sales receipt.
  • Purchase amounts: Merchants cannot impose minimum or maximum purchase amounts for credit card transactions.
  • Surcharges: Merchants are prohibited from adding fees on to credit card purchases.
  • Taxes: Merchants cannot collect sales tax separately as cash; it must be included in the purchase price.
  • Zero-percent tip: Merchants are not allowed to include an estimated tip in the authorization amount secured from the merchant bank. Taxicabs, limousines, bars taverns, beauty salons, barbershops, health and beauty spas, and restaurant authorizations are automatically assessed a 20 percent additional authorization amount to cover the expected tip.
  • Convenience fees: Convenience fees can be imposed by merchants who provide alternate payment services -- such as shops that offer utility payment services -- and can be added to the transaction amount. The transaction must be a legitimate, alternate payment channel outside of the merchant's normal business practice, the fee must be disclosed to the customer and the customer must have the opportunity to decline the transaction.
  • Delayed delivery: When purchasing an item or service to be delivered at a future date, the vendor can process two transactions -- a deposit and the balance amount; however, the vendor must obtain two separate authorizations for both dates and both amounts and can only submit the balance amount upon the actual delivery of the item or service.
  • Discount for cash transaction: Merchants can offer this discount as long as the information is clearly disclosed to customers and the cash price is presented as a discount from the standard price charged for all other forms of payment.
  • Mail order: Mail order merchants must send the store's refund and credit policies to the customer for signature and return before completing the sale. The document can be sent by e-mail, fax, or mail. Acceptance can be accomplished on the Internet via an agree/accept function where the customer reads a terms and conditions form and checks the "agree" box before ordering any products or services.
  • Partial authorization: Authorizing a portion of a sale to guarantee a portion of the purchase amount is at the discretion of the merchant and the customer.
  • Refund/exchange policies: If not processing refunds to credit cards, vendors must clearly post if credit card returns will be made via exchange or in-store credit or if returns are simply not accepted.
  • Split-tender: Acceptance of a split-tender (accepting multiple payment forms) occurs at a merchant's discretion.

See related: Interchange fee changes coming, and what that means for consumers, Debit card swipe fee debate pits banks vs. merchants, When merchants tack on card processing fees 

Updated: August 22, 2011


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