photo-20Q: It irritates me that I’m forced to pay a higher price when I use my credit card to pay for gas, while others get discounts for using cash. The same goes for restaurants that require a minimum when accepting credit cards. I don’t carry much cash. Who still carries that much cash with them? Is any of this legal?

– Steve V.

A: Your frustrations are understandable and extremely common. With the allure of rewards and cash back credit cards, it would seem unwise to pay for anything without a credit card.

Unfortunately, it is perfectly legal for merchants to charge a lower price when cash is used as the form of payment because the purchase is considered a discounted transaction. Gas stations and many mom-and-pop stores are well known for employing such a policy.

However, in certain states, it is illegal for merchants to impose a credit card surcharge, an add-on fee for using credit cards. Payment networks, such as Visa and MasterCard, also require that merchants enforce the same rules for all their stores. If a merchant’s store is in a state that bans credit card surcharges, under the agreements with payment networks, it cannot charge such a fee in any other state.

In January 2013, a large legal battle between merchants and card payment networks resulted in a settlement that allowed merchants to enforce a credit card surcharge policy. But, many merchants refused to do so, possibly to avoid pushing customers away to competitors.

Sure, there isn’t much of a difference between the concepts of a cash discount and a credit card surcharge. Yet, there is no rule that applies to both.

As for credit card minimums, they were previously forbidden under law. If a merchant accepted your credit card, there should be no minimum spending required. It didn’t stop many merchants for slapping a “credit card minimum” sign at the door though.

Today, merchants are allowed to place minimums on credit card purchases.

Since the Dodd-Frank Act took effect in July 2010, businesses were allowed to enforce a minimum transaction amount of up to $10 for a credit card purchase. The rule requires that the minimum must apply to all cards that are accepted. For instance, a merchant cannot impose a $5 minimum for a Visa card while having a $10 minimum for American Express cards, if accepted.

While it seems unfair to the consumer, it is easy to see why merchants use such a policy. If a merchant pays $0.20 cents plus 2% of a transaction, the merchant’s cost to accept a credit card on a $2 purchase is $0.24 cents, or 12% of the transaction. On a $10 purchase, the merchant’s cost is $0.40, or 4% of the transaction.

Note that the spending-minimum rule only applies to credit card, not debit cards (regardless of whether or not you choose the “credit” or “debit” option at checkout).


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  • highinterest

    Carry some cash and stop whining about the minimums.