Using a Credit Card? You May Have to Spend a Minimum Amount

About three times a week, Rhonda Williams uses her credit card to buy a cup of coffee at a local gas station. Although all she wants is the coffee, she ends up buying a donut or a breakfast sandwich, too, only because the store requires a minimum $3 purchase when credit cards are used.

Little did the Roswell native, like many others, know that the practice of setting minimum purchase amounts for credit card transactions is perfectly legal.

“I thought it was just another way for stores to force customers to spend more money,” she said. “I was even going to complain about it once, but ended up letting it go.”

The problem is there is no one to complain to because of a new federal law that was passed in July of last year. Called the Dodd-Frank Wall Street Reform and Consumer Protection Act, the new law seeks to address interchange fees merchants must pay in order to process credit card transactions. However, an amendment added to it takes that a step further and paves the way for credit card users like Williams to have to spend a certain amount for purchases.

Specifically, the provision says that merchants can require customers to spend a minimum amount if they are using a credit card. Prior to the provision, merchants who made such demands were in violation of their merchant agreements with MasterCard and Visa.

Dave Kelley is a co-founder of Roswell-based The Payment Partners, which assists businesses with providing non-cash businesses and services. He says the provision could prove valuable for big merchants.

“The big merchants will see the most money saved,” Kelley said. “The question is if they would pass those savings on to consumers.”

Jeff Cole works in Roswell at a Starbucks Coffee and says that he often sees customers whip out their credit cards for a $3 cup of coffee.

“I’m like, ‘dude, you don’t have $3 cash?’ ” Cole said. “But it’s so much faster than the customers fumbling for the exact change. They can hold up the line.”

For large businesses like Starbucks, the interchange fees they are charged to process credit card transactions don’t have as much impact as they have on small businesses. The transactions usually cost merchants about two to three percent of the transaction amount.

“Take a merchant that sells low-ticket items, or whose sales that average about $5,” Kelley said. “The interchange fees could cost them a lot more per transaction than merchants that sell big ticket items that are $100.”

The issue has touched off a national firestorm, with merchants of all sizes lobbying Congress to reform the industry’s interchange fees. The Dodd-Frank Act has been a sticking point since it was passed as merchants and other proponents say the fees must be reigned in, especially when it comes to fees charged to process credit card transactions compared to those for debit card transactions. Credit cards are more expensive to process; the minimum fee allowance was meant to help defray these costs.

The law called for the Federal Reserve Board to take public comment and then make adjustments. Fed Chairman Ben Bernanke last week said that the board has received an overwhelming amount of comments and that it will be after a set deadline of April 21, before it would make its recommendations.

Kelley said he believes that the provisions regarding interchange fees will not go into effect for another year or so because more study needs to be done.

“There are a lot of complicated moving pieces involved,” he said. “It’s like a jigsaw puzzle. It’s hard to make sense of it.”

Kelley added that he believes government oversight of the fees is unwarranted.

“It’s a matter of supply and demand. If the card networks keep increasing the fees, merchants will say they’ve had enough and they will stop accepting their cards,” Kelley said. “Then they’ll cut the [fee] prices.”

In the meantime, shoppers like Kate Wallace say they plan to avoid stores that require them to make minimum purchases.

“I don’t like it at all,” she said. “I have only seen the signs at small stores, but I haven’t seen them here [in Roswell]. If I do, I’d not shop there.”

Brian Rhodes disagreed. “I know some small business owners and people just don’t know how much they have to pay just to please customers,” he said, referring to accepting credit cards knowing it will shave off the amount of their profits. “It’s a matter of doing the right thing.”