by Ben Dwyer Many businesses wonder: Is it legal to require a minimum purchase amount for card transactions?
The short answer is: Yes and no. The longer answer is that it depends on the type of card. You’ll have to follow applicable rules as well.
Credit cards:
Yes. It is acceptable for you to set a minimum charge on credit card purchases as long as you abide by the stipulations as set forth in your processing agreement with Visa, Mastercard and Discover.
Debit cards:
No. It is not acceptable for you to set a minimum charge on debit card purchases.
Let’s take a closer look at the rules and requirements for imposing minimum purchase requirements when a customer pays by credit card.
The Current Regulations
You may set a minimum purchase amount on credit card purchases so long as you abide by the card brands’ requirements.
American Express is (and always has been) largely silent on the issue of minimums. It’s generally regarded as acceptable to apply terms set forth by Visa, Mastercard, and Discover to American Express.
Here are the finer details regarding minimum charge restrictions on credit card purchases.
The minimum purchase amount must be $10 or less.
As I outline a little farther down, the Federal Reserve has the power to adjust the minimum purchase amount. So, although the Federal Reserve currently caps the fee at $10, it can change. Visa, Mastercard, and Discover all note the $10 cap for credit card minimums in their documentation for businesses.
You may not differentiate among card-issuing banks.
In other words, you can’t impose a minimum purchase amount on cards issued by one bank and not another. For example, you can’t impose a minimum on cards issued by Citi Bank when not imposing a minimum on credit card issued by Bank of America.
You may not differentiate among card brands.
In other words, if you choose to set a minimum charge, the minimum must apply to Visa, Mastercard, and Discover equally.
Here are the excerpts from the published operating literature of the big three concerning minimum purchase amount for credit cards:
“Merchants may require minimum purchase amounts on credit card transactions. The minimum purchase amount must not exceed $10 (or other amount as set by law), does not apply to transactions made with debit cards, and cannot differentiate on the basis of the issuer or payment card network.” – Visa
“MasterCard permits any U.S. merchant to set a minimum transaction amount (not to exceed USD 10 or any higher amount established by the Federal Reserve by regulation) to accept MasterCard cards that access a credit account. MasterCard does not permit merchants to set a minimum transaction amount to accept MasterCard cards that access a debit account.” – MasterCard
“You may not require that any Card Sale or Cash Advance involve a minimum dollar amount before a Cardholder may pay using a Card, except to the extent restrictions on such practice are prohibited by Requirements of Law, and effective upon publication of Release 11.1 of these Operating Regulations, you may require that a Card Sale or Cash Advance with a Credit Card (but not a Debit or Prepaid Card) involve a minimum dollar amount of up to $10, subject to the restrictions in Section 2.4.” – Discover
Note that the excerpts reference the $10 cap on minimums, specify that debit card transactions are exempt, and state that the minimum can’t differentiate based on issuer or payment network.
Why Minimum Charges Are Allowed
Until 2010, the card brands didn’t allow minimum charge amounts on credit card transactions. They didn’t want businesses to discourage use of cards to make purchases. So why the change of heart? You can thank Uncle Sam, or more specifically, Senator Durbin.
Thanks to the Durbin Amendment, the Federal Reserve has the power to regulate minimum amounts for credit card purchases. The Federal Reserve set the current limit at $10 or less.
The portion of the Durbin Amendment pertaining to minimum purchase amounts on credit card transactions reads as follows:
“(3) NO RESTRICTIONS ON SETTING TRANSACTION MINIMUMS OR MAXIMUMS.–A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to set a minimum or maximum dollar value for the acceptance by that person of any form of payment.”
In this excerpt, the text clearly states that payment card networks can’t prevent a person from setting a minimum or maximum amount for payments. The above text was taken from the website of the U.S. Government Printing Office.
How It Used to Be
As you can imagine, minimum purchase amounts on credit card transactions aren’t exactly in the card brands’ best interests. After all, they make money when consumers use their cards. Until the Durbin Amendment, minimum purchase amounts were against the processing agreements of all four major card brands.
Here’s what the card brands used to say prior to Durbin:
“Always honor valid cards in your acceptance category, regardless of the dollar amount of the purchase. Imposing maximum or minimum dollar amounts in order to accept a Visa card transaction is a violation of the Visa rules.” – Visa
“A Merchant must not require, or indicate that it requires, a minimum or maximum Transaction amount to accept a valid and properly presented Card.” – MasterCard
“You may not require that any Cardholder make a minimum dollar purchase in order to use a Card and you may not limit the maximum amount that a Cardholder may spend when using a Card except when the Issuer has not provided a positive Authorization Response for a Card Transaction.” – Discover
All three companies very clearly prohibited imposing minimums in order to use their cards. These days, the brands all acknowlege that minimums are permitted by law, but only on credit card transactions.
For Consumers
We receive quite a few emails from people upset about minimum charges on credit card purchases. I understand that a minimum can be a little frustrating, but try to see things from the business’s perspective.
Business owners often lose money on small credit card transactions after paying their credit card processing fees.
In most cases, there is no need to report businesses that impose minimum transaction amounts on credit card purchases since the practice of doing so is now deemed acceptable by the major card brands. However, if a business imposes a minimum more than $10 or requires a minimum on debit card purchases, you can choose to report that business to Visa or Mastercard. Before reporting, it’s always a good idea to speak with the owner or manager. Regulations change frequently and the business may be unaware of the latest requirements.
I encountered this tonight…I will not shop at these merchants and if I make the mistake of entering an establishment….i’ll wait until the transaction is in progress and walk out…
I work as a cashier for a small business, and I’m GLAD of the new law. No more of someone coming in for a small can of pop or a candy bar and want to tie up other people in line (credit card transactions take longer).
And if you OWNED a business and had to pay the bank fees on the card, you’d agree!
Lastly, don’t think of it as an inconvenience to you, but a way to keep prices down. Most places have to raise their prices to compensate for all the bank fees.
PS: banks charge businesses MORE when you use a DEBIT card!!!!!!
Your last statement is not true. Merchants don’t get charged for processing a Debit Card!!!
Hi Mary & Ryan,
You’re actually both right. A business with a small average ticket will pay more to process a debit card than it will to process a credit card. The increased cost is a result of the Durbin Amendment’s inadvertent impact on small tickets.
The Durbin Amendment’s cap on debit fees did lower interchange costs on debit card transactions relative to credit card transactions for businesses with an average or above average ticket size.
Banks absolutely charge you more for Debit card transactions. There are over 700 different types of credit and debit cards with MC and Visa logos. Merchants can end up paying a different fee for each type. Almost all debit cards have higher transaction fee then CC’s do.
Hi Small Business Owner,
It’s important to understand that interchange fees for both credit and debit cards consist of a percentage and a per item fee. Credit interchange fees have a predominantly higher percentage but a lower per item fee than debit card interchange fees. This is true even for Durbin exempt interchange.
So, to cost of a credit versus debit transaction will depend on a business’s average ticket. Businesses with lower average tickets will pay a higher fee to accept a debit card due to the higher interchange per item fee associated with debit interchange. However, businesses with higher average tickets will pay less to accept a debit card due to lower debit percentage charges at interchange.
You’re correct in that there are over 400 different interchange categories among Visa, MasterCard and Discover, but many categories are not widely applicable. Many only pertain to certain industries, or to businesses that process transactions using enhanced data.
With that said, it is actually in a business’s best interest to pay as close to interchange fees as possible. Doing so will lower overall processing expense. This is something that explained in detail in CardFellow free guide: Credit Card Processing [Exposed].
Oh yes they do, and more for debit than credit. I know I own a business.
Ryan, you’re sadly mistaken. There are fees to accept debit cards by merchants. It doesn’t cost the customer but it does cost the business to accept them. There are network access fees and a host of other costs to accept credit, debit or pre-paid cards.
I recently stopped at a cafe/resturant. I was appalled when a customer gave his debit/credit card to the cashier and was told, they charge a $1.00 fee for debit/credit cards. Is this permitted?
Could you clarify the $10.00 minimum if I use a debit card as a credit card and process with a signature and not a PIN? Does the minimum apply then?
Hi Tina,
The law does not permit a minimum on debit cards (signature or PIN) or prepaid cards. The law applies only to credit cards.
This is really lame on the part of congress.
In the San Francisco Bay Area you would see businesses with minimum charges for credit cards (and usually debit) a lot. Usually it was $2 or maybe $5, but if for some reason I was under the minimum, I’d correct the merchant that they were in violation of their agreement with Visa and that they could not have a minimum charge.
They’d ask surprised.. but I was pretty sure most of them knew exactly what they were doing.
But that all changed last year. I know the max can be $10, but I haven’t seen that yet. I have had to correct a merchant that had a $5 minimum on debit transactions. He said, “The law changed,” and I had to correct him that it didn’t apply to debit transactions. He wasn’t too happy, but he did run the transaction for me nonetheless.
Hi Otta,
Thanks for your comment. I can understand your frustration with credit card minimum purchase amounts. I too find myself pulling out cash because of minimums every now and then.
It doesn’t get to me, though, because I know that businesses set a minimum to avoid losing money on small transactions. Credit card processing fees can really add up, and small transactions are especially expensive.
The transaction fees that banks and credit card processors charge can be larger than a business’ profit on transactions that are too small. That’s why many businesses have chosen to exercise their right to impose minimums.
I am a small business owner, and although this “new law” has been established, the public is still not aware of it and very argumentative. I encounter irate customers every day. By the way, a business is charged a fee whether or not it is a debit or credit card!! It is a necessity in today’s world of credit and debit cards to insist on a minimum. Bank fees are excessive. I want to thank Ben and Mary for their understanding. Most of my customers are understanding, but of course, there are always those who will argue with you. Many times a customer will ask what the minimum is before they purchase an item. This avoids any misunderstandings and purchases that a customer will walk out and not take with them because of no “cash”. It is confusing to me to walk around a large city with no cash and just a card. Many establishments still do not take cards – cash only. When you accept credit along with cash it is an accommodation to the customer, therefore, the customer should be more understanding when we set a limit on cards.
Hi Jim,
You hit the nail on the head — many people aren’t aware of just how much in fees a business pays simply to process a credit or debit card transaction.
By the way, have you signed up here at CardFellow to get interchange plus quotes from multiple processors? We’ll do our best to help you lower your fees, and our help is free.
Jim,
I am a consumer. I only encounter this “Minimum Purchase Amount” at eateries in my local area. I have cash in my Checking Account. I have a Debit card to access it. Carrying cash is “old fashioned” to me. I’m finding most merchants ask me to pay at least $5 for my lunch on my debit card or pay cash. They are applying “credit card” minimum payment rules to “debit cards”. My lunch just this week added up to $4.70. They suggested I purchase another bagel. I lost my opportunity for a lunch and the establishment lost $4.70. They also lost much more than my repeat business. I work in an office that has over 500 people working on a daily basis. I spread the word not to frequent this establishment anymore unless you had a party of two or more people because of the $5 minimum rule. Lucky for us there is another establishment one block over that does not have the minimum fee for debit cards. They have good food too!!
What is your view on this?
Thanks,
Jade
Plastic costs everyone money, carry cash.
I am a small business owner and while I do not like paying the fees the credit card companies receive, it is poor customer service to charge a minimum or accept only cash. I don’t know where you live, but I know of only one business I have ever been to that won’t accept cards, and only one other that sets a minimum. It’s just a matter of keeping up with the times!
Small business owner – what was your loss on bad checks prior to customers using debit/credit transactions at your establishment?
The fee is small in light of the fact you receive guranteed funds on the biggest majority of your sales today.
With the increase in debt/credit to the credit card arena has created massive fraud being written off by issuers – business owners should be required to verify who they are doing business with rather than just swiping.
Sarah
I live in a small town with two convenience stores and I currently work at both. One has a lot of business with a $10 minimum and the other doesn’t have a lot business and is privately owned and they do not have a minimum. I am not sure of the fees for credit/debit uses at either but I cannot help but feel the smaller store may be losing money not having a minimum set? Is this a possibility?? People can spend as little as $2.00 if they like.
Hi Laci,
Minimums can only be imposed on credit cards, not debit cards. Whether it makes sense for the store to impose a minimum depends on how many of the small transactions are on credit cards. Many people pay for small purchases (under $10) with debit cards, so it may or may not be worth imposing, depending on the specifics of the store. I hope this helps!
The fact still remains that I am one of many consumers who refuse to patronize merchants that have a minimum or fee to use a credit card. The benefits to using a credit card in modern day business (for consumer and business-especially accounting) simply overweigh the argument to carry cash. I never have cash and will walk out and never return to merchants that abuse credit/debit card customers.
The fact is that a savvy merchant would have an overall effective rate of way under 4% if they have done their due diligence when selecting providers. Their inability to secure a merchant account with decent rates/fees is not the concern of customers. Businesses must be smart in signing contracts, purchasing equipment, and accepting cards at the register. To simply ignore the benefits of accepting plastic or mobile in this day and age will ensure businesses will decline or fail.
I have no pity on business owners who are not smart or savvy enough to secure a good merchant account.
Consider that on the high average of 4% (effective rate – total processed/fees) a $10.00 purchase would cost the business $0.40. If they have not priced their products appropriately to consider credit/debit as part of their cost of doing business, then they are to blame for poor business practices.
Does anyone remember when the stores used to charge more for beverages that were refrigerated vs. warm? This is how I relate increased charges for using debit/credit. It is a terrible business practice and the business will earn their failure as consumers continue to carry less cash.
Next topic: Ignorantly demanding ID with every credit/debit purchase.
I understand your statement, to a point. Take our coffee shop as an example: A small cup of coffee, after tax, is $1.98. Under the Durbin amendment, Visa will charge $0.22 and 0.5%. In addition to this, our processor will charge $0.05 and 0.10% (which is a very low rate). The fees from visa alone equal nearly 12%, but together we will be charged 14.8%, or roughly $0.30.
I appreciate your willingness to pay the extra $0.30 for your cup of coffee, but the majority of consumers do not share your sentiment.
I am not ignorant of the available providers of merchant services and I have gone great lengths to shave off expenses in our business anywhere possible. Despite my efforts, our expenses are 1st rent, 2nd staffing, 3rd electricity, and 4th credit card processing. It is a huge expense in the scope of the business.
Is there a maximum percentage fee you can charge on debit cards? I’ve heard there is but I can’t find anything to back that.
Hi Jessica,
Maximum fee for a surcharge? You can’t charge anything to the customer for using a debit card. It’s only permitted on credit cards, under certain conditions. I hope this helps!
If the debit card is run as a credit instead of debit using a PIN, a service fee of up to 4% can be added to purchase if merchant is enrolled in cash discount program, which is a new program savings merchants thousands.
Hi Lisa,
Debit cards can never be surcharged, even when run “as credit” or without a PIN. This is addressed in Visa’s FAQ on surcharging for merchants, which states:
“Can I assess a surcharge on debit card transactions for which the cardholder using a debit card chooses “credit” on the point of sale terminal?
No. The ability to surcharge only applies to purchases made with a credit card, and only under certain conditions.” https://usa.visa.com/dam/VCOM/download/merchants/surcharging-faq-by-merchants.pdf
However, discounts for cash purchases are always permissible.
I had a conversation with a bar owner a few days ago. He was frustrated with the amount of money it was costing his business to accept ANY cards, debit or credit. I, along with the other customers present were SHOCKED when he said he was currently paying about $3000.00 a month in card fees! This was a VERY SMALL BAR!
He also explained how card processing is unlike ANY other business practice in America. Instead of receiving a bill each month, with 10 days to remit, the processor just TAKES the money out of his account, and sends him a statement to let him know how much they TOOK! Is that REALLY TRUE?
Without knowing the total amount of credit/debit card sales, it’s impossible to say if $3,000/month is high, but if it’s a small bar, it could be. Unfortunately, many businesses overpay for processing.
“Instead of receiving a bill each month, with 10 days to remit, the processor just TAKES the money out of his account, and sends him a statement to let him know how much they TOOK! Is that REALLY TRUE?”
Yes, that is how processing fees are typically deducted. The processor can take the amount owed either daily or monthly. Monthly is usually preferable for cash flow purposes. There are some processors that deduct fees before depositing the funds from the card sales into a business’ account, but that’s not as common.
A small local pharmacy has a minimum of $5 when a card is used to pay for anything purchased at the pharmacy including prescription copays. Is it legal to impose a minimum $5 purchase when paying for a copay less than $5?
Minimums up to $10 are permitted for credit card transactions. You could try arguing with them to allow debit use, but otherwise you’d have to either purchase something else or use cash.