Credit Transactions: Can Merchants Impose Minimum Amounts?
13 March, 2020
A lot of merchants have this query as to whether there is an option of imposing minimum amounts. It is indeed an option to set minimum charges. Let us elaborate on this.
Implementing a Minimum Amount on Credit Card Purchases
While it is true that you can set a minimum amount on credit card purchases, keep in mind that there are certain legal and contractual limitations you will have to abide by. You need to be aware of all the restrictions before you think about implementing it.
Before 2010, it was the major credit card associations that governed the setting of minimum credit card charge, and the practice was prohibited by nearly all major credit card brands. The merchants stood to lose money due to small-ticket transactions. It was in 2010 that the federal government analyzed the situation and passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This act removed all restrictions on setting minimum and maximum transaction charges, giving the merchants the freedom to set minimum allowed amounts.
However, there are certain limitations. The Federal Reserve has the right to decide on the highest minimum purchase requirement that can be imposed, and this limit can be changed as per need.
Although the credit card associations do not have the right to stop merchants from setting minimum purchase amounts, they did bring some changes in their processing agreements to make sure that the imposed minimum is equitable. They ensured that the imposed minimum purchase requirement treats all the credit cards and issuing banks in the same manner. To put it simply, if you set a minimum purchase for Visa, it will hold for MasterCard as well. Similarly, minimum purchases for one issuing bank will be applicable for another one. You are not allowed to decide varying minimum amounts for different issuing banks and credit card brands.
Implementing Debit Card Minimum Purchase Amount
Now that it is clear that merchants can set minimum purchase amounts for credit transactions, the next likely question is whether the same can be done for debit cards.
While there are some exceptions, on the whole, it is not possible to set a minimum purchase requirement on debit card transactions. Considering that the revenue of card companies could severely be impacted with limitations, they took measures to make sure that no minimum requirement could be set as far as debit transactions were considered.
When Debit Cards are Treated as Credit
Merchants using flat-rate or tiered pricing plans have to pay heed to a lot of factors. The same rate is charged for both credit and debit cards in flat-rate pricing wherein debit card transactions are dealt with in the same way as credit card ones. This implies that the merchants have to pay more than expected to process debit card transactions.
Tiered pricing depends on the structure decided by the processor. Some have the same approach to debit and credit card transactions, while others have a separate rule.
When the merchant is paying the same rate for credit card and debit card transaction, he can set minimum purchase requirements depending on the processing agreement he has with the major credit card associations and the contract with the merchant account provider. These documents need to be read carefully before you decide to set the minimum purchase requirement.
If you want to make sure that you do not end up in a loss and set the right minimum purchase requirement, ensure that you read the terms and conditions of your contracts and agreements thoroughly.
All this can get quite a bit overwhelming, and it would be of immense help if you have a reliable credit card processing company by your side during the time. Dynamic Merchant Solutions is one place that would not let you down in this regard.