Visa, MasterCard minimum transaction limit changes

Visa and MasterCard merchant card acceptance policies state that merchants cannot set a minimum for accepting credit cards on a transaction. If you accept the card, you must accept for all transactions. This has not stopped businesses, especially restaurants and quick stop stores from posting signs with $10 minimum charge. The repercussion for merchants can be fines and removal of card acceptance privileges. Additionally there are state laws that address this issue and conflict with the card association regulations.

Why do merchants want to set a minimum fee? The problem is the high cost of credit and debit card processing relative to their profit margins. For example, a typical sale costs the merchant a percentage rate and a per item fee. If 2% plus $.20 per item, that’s the equivalent of 4% fee for accepting a card for payment.

The 2010 Durbin amendment specifically addresses this issue in this section:

  • Setting of maximum/minimum transaction thresholds for use of a credit card
The Senate-passed amendment provided that card networks could not prevent merchants from setting a minimum or maximum dollar amount for payment by credit card.
The compromise provides that such a minimum may not exceed $10, with authority given to the Fed to increase that dollar amount. The compromise also limits the ability to set maximums for payment by credit card to the Federal government and colleges and universities. The compromise further clarifies the Senate language and establishes that a minimum payment not exceed $10 matching laws currently on the books in a number of states.

It’s important to note that the Durbin Amendment is still a work in progress that will give the Federal Reserve new powers. Not everyone thinks this is a great idea, as we published in the article

Financial Industry responds Durbin amendment on interchange

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Credit CARD Act of 2009 interchange fees

The Credit Card Accountability Responsibility and Disclosure Act of 2009, or the Credit CARD Act of 2009 was passed by Congress and signed into law by President Obama May 22, 2009. While most recognize it for consumer protections, TITLE V–MISCELLANEOUS PROVISIONS has several topics that relate to interchange fees and merchants:
Sec. 501. Study and report on interchange fees.
Sec. 503. Stored value.
Sec. 507. Small business information security task force.

SEC. 501. STUDY AND REPORT ON INTERCHANGE FEES.

(a) Study Required- The Comptroller General of the United States (in this section referred to as the ‘Comptroller’) shall conduct a study on use of credit by consumers, interchange fees, and their effects on consumers and merchants.

(b) Subjects for Review- In conducting the study required by this section, the Comptroller shall review–

(1) the extent to which interchange fees are required to be disclosed to consumers and merchants, whether merchants are restricted from disclosing interchange or merchant discount fees, and how such fees are overseen by the Federal banking agencies or other regulators;

(2) the ways in which the interchange system affects the ability of merchants of varying size to negotiate pricing with card associations and banks;

(3) the costs and factors incorporated into interchange fees, such as advertising, bonus miles, and rewards, how such costs and factors vary among cards;

(4) the consequences of the undisclosed nature of interchange fees on merchants and consumers with regard to prices charged for goods and services;

(5) how merchant discount fees compare to the credit losses and other costs that merchants incur to operate their own credit networks or store cards;

(6) the extent to which the rules of payment card networks and their policies regarding interchange fees are accessible to merchants;

(7) other jurisdictions where the central bank has regulated interchange fees and the impact on retail prices to consumers in such jurisdictions;

(8) whether and to what extent merchants are permitted to discount for cash; and

(9) the extent to which interchange fees allow smaller financial institutions and credit unions to offer payment cards and compete against larger financial institutions.

(c) Report Required- Not later than 180 days after the date of enactment of this Act, the Comptroller shall submit a report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives containing a detailed summary of the findings and conclusions of the study required by this section, together with such recommendations for legislative or administrative actions as may be appropriate.

EDITORS NOTE: I can only hope that the federal government will refer to prior reports including the Federal Reserve 2008 Payment Trends research project and the interchange fees report by federal reserve of Kansas City in 2005

SEC. 503. STORED VALUE. I will address this in a future blog post as it doesn’t affect merchant accounts in general.

SEC. 507. SMALL BUSINESS INFORMATION SECURITY TASK FORCE.

EDITORS NOTE: This section addresses a variety of security actions for small businesses, including storing credit card data. All businesses are required to be PCI Compliant to accept credit cards, but this business segment has been slow to comply. Recently, First Data enacted a new PCI Compliance fee for all level 4 merchants (small businesses) because most companies continue to fail when their compliance is checked.

Read the full Text of H.R. 627: Credit Card Accountability Responsibility and Disclosure Act of 2009, or the Credit CARD Act of 2009.