As the dust settles on the Dodd-Frank Wall Street Reform and Consumer Protection Act and banks and consumers alike are coming to terms with the fact that the cap on debit card interchange fees--provided for by the Durbin Amendment to this law -- and its other major provisions are or will soon be reality, attention is turning to the smaller rules laid out in this 848-page law. One such tidbit, which can be found on page 698, provides legal legitimacy to the long-held small-merchant practice of setting minimums for credit card payments.
Such minimums were once forbidden by credit card networks like Visa and MasterCard, and merchants essentially had to either forgo accepting credit cards at all or agree, break the rules and hope not to get caught.
Now, according to the Dodd- Frank Act, neither payment card networks nor any agents, contractors or affiliates can “inhibit the ability of any person to set a minimum dollar value for the acceptance by that person of credit cards,” provided that the minimum does not differentiate between networks or issuers and is not more than $10.
The signs that we have all seen at the checkout counter, declaring minimum purchase requirements for credit card transactions, therefore now have a legal basis. Merchants are now rightfully entitled to decline credit card transactions that they deem unprofitable, something that industry experts believe to be a positive occurrence.
“It’s actually quite smart for merchants to forbid credit card use for purchases under a certain amount,” said Odysseas Papadimitriou, founder and CEO of the credit card comparison website WalletHub. “Doing so is a way to incent credit card companies to make the cost of these small transactions more reasonable. Before, merchants were either at the mercy of credit card networks or were driven to break the law. Now, they have more solid ground to stand on in pushing back against credit card companies. After all, just because a merchant wants to accept credit cards for purchases over $10, doesn't mean he also has to lose money on transactions totaling just a couple of bucks.”
This new rule may be seen as an inconvenience by consumers who find themselves in a store, needing to make a small purchase, but without the requisite cash. As long as you are aware of this legal development, however, you should be able to get used to making sure you have at least $10 whenever you head out. Besides, lower credit card interchange fees could eventually be the result of these Congressionally blessed minimum transactions.
Interestingly, this section of the Dodd-Frank law also laid out situations where maximums for credit card transactions could be implemented as well. Payment card networks or any parties acting on their behalf similarly cannot “inhibit the ability of of any Federal agency or institution of higher education to set a maximum dollar value for the acceptance … of credit cards, to the extent that such maximum dollar value does not differentiate between issuers or between payment card networks.”
"Again this allows certain merchants to use credit cards exactly as they wish,” Papadimitriou said. “If credit card networks make unreasonable swipe-fee demands for transactions large or small, merchants can exercise their right not to accept credit cards and thereby force credit card networks to become more competitive. What I do not understand is why ALL merchants aren’t allowed to set maximums?"
Papadimitriou, for one, sees a more efficient means of lowering costs for merchants and consumers alike and creating true competition within the payments industry. "I say allow merchants to provide discounts and assess surcharges as they please, and even differentiate between credit card networks and payment types. For example, if your local dry cleaner could charge one price for a shirt if a Visa credit card was used as payment, a lower price if aMasterCard credit card was used and a higher price for payment with an American Express charge card, then interchange fees would surely fall across the board."