Have you ever walked into a smaller grocery store or neighborhood restaurant and noticed a sign indicating a minimum purchase to be ‘eligible’ for using your credit card?
What many merchants know is that this ‘minimum purchase’ practice is strictly forbidden by the contracts they agreed to and enforced by all credit card issuers — Visa, MasterCard, and American Express. Yet some merchants choose to risk the possible fine and, in extreme situations, even banning in order to minimize some of the costs associated with accepting credit cards.
So what options do merchants looking to cut processing fees have?
Cash Discount
While credit card issuers forbid the use of a surcharge on credit card transactions, federal law offers an alternative that can’t be contractually signed away – the option to offer discounts for cash payments.
Section 226.12 of the Federal Truth in Lending Act states:
No card issuer may, by contract or otherwise:
(1) Prohibit any person who honors a credit card from offering a discount to a consumer to induce the consumer to pay by cash, check, or similar means rather than by use of a credit card or its underlying account for the purchase of property or services;
The only caveat is that the cash price must be presented as a discount to the standard price. Advertised prices would need to indicate the credit card price first and then display the lower “cash discount” price as a discount.
Convenience Fee vs Surcharge
In short, credit card issuers don’t want merchants charging higher fees to consumers simply because they chose to pay with a credit card – but they do offer the ability to charge ‘convenience fees.’
Basically convenience fees are charges in excess of the basic transaction amount for the privilege of using an alternate payment method. While this might sound confusingly similar to a surcharge, the basic difference is that it is not tied to a payment method (ie, credit card vs cash) and instead tied to an added convenience (like accepting payment online or over the phone instead of in person).
If you have any questions about what is and isn’t kosher, feel free to contact us at Prestige Payment Systems and our agents will be happy to assist you with any of your merchant account needs.