Everything You Need to Know About Imposing a Minimum Purchase Amount

We’ve all seen crude handwritten signs at stores that refuse to take a credit card for purchases under $10. As a merchant, perhaps you have thought about implementing this as well but wonder if it is legal. The short answer to this question is – YES! The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 permits merchants to impose a minimum purchase of $10 – the maximum amount allowed by law.

Up until 2010, most card networks prohibited merchants from setting a minimum for credit card transactions. The card issuers wanted their cards to be universally accepted like cash. But, as you know, accepting a credit card costs money and sometimes the profit margin of small items is too small to cover the processing costs. This prompted a coalition of retail and small business organizations to ask Congress to create a law that allows them to implement a minimum charge.

Specifically, H.R. 4173-698 addresses “LIMITATION ON RESTRICTIONS ON SETTING TRANSACTION MINIMUMS OR MAXIMUMS”. The law went into effect in July 2010. That law says that merchants can set a credit card minimum purchase of up to $10, as long as they treat all cards the same.

Will You Alienate Customers?

While it is legal, the minimums make it inconvenient for cashless shoppers who may be forced to buy other items simply to use their credit card. They may opt to direct their business to larger merchants like Walmart or Target who have no such minimums. You certainly risk this and especially with younger customers who are going cashless and use credit for everything. You will have to weigh the potential financial benefits of refusing small transactions against the fact that not accepting the cards will inconvenience some of your customers. Since many people don’t carry much cash these days, turning them away when they are in a pinch could cause you to lose those customers forever.

Card Brand Rules

Until the 2010 federal law was enacted, three of the big four card networks (Visa, Mastercard, and Discover didn’t allow merchants to set transaction minimums as part of their Merchant Agreement with those authorized to accept their brand. American Express has always allowed merchants to set transaction minimums as long as merchants applied the minimums to all credit cards. It is important that you and your staff understand some rules imposed by the brands. As an example, Visa’s Merchant Agreement says you can’t impose a minimum transaction on people who use debit cards. While that seems simple, your customer could press the credit key when swiping their Visa debit card and your staff might attempt to impose the minimum purchase rule. Your staff should be taught to differentiate between a credit card and debit card. To make it just a little more complicated, Mastercard has rules that allow a merchant to set a minimum transaction for some of its cards but not for others, depending on the card issuer. American Express has a similar policy.

Debit Card Rules

The 2010 law only applies to credit card transactions. Debit card transactions are expressly prohibited from having minimum purchase amounts. Under Merchant Agreements with the card brands, minimum payments may not be imposed when a debit card is presented. MasterCard’s agreement is typical. It says, “MasterCard does not permit merchants to set a minimum transaction amount to accept MasterCard cards that access a debit account.”

Options for Increasing Purchase Amounts

To avoid having to turn people away, consider incentivizing your customers to buy more by running a buy two, get one free promotion or something similar. Another method is to offer an attractive discount if customers buy a larger size of a particular product. This may cause them to go over the minimum amount. Just remember, consumers make most buying decisions based on emotion and includes deciding where to shop based on previous encounters and the emotions created in the transaction experience. If you make them angry or even annoyed, they will associate that emotion with your business. Chosen Payments makes no recommendation on whether you should implement a minimum purchase amount but rather provides this educational information to allow you to make your own decisions based on your industry and clients.

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