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Editor's note: This story, while accurate at the time of its original publication in 2008, has become outdated in regards to minimum purchase requirements.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.
Why 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."
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|
Updated: August 22, 2011
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