Can You Set A Minimum Purchase Amount For Credit & Debit Card Payments?
Learn the rules and laws about setting minimum purchase amounts and find out when it makes sense to have a policy, and when you should cut your losses.
So, you’ve opened your business, and you’re starting to rack up a lot of sales. You’ve even signed up for a merchant account so your customers can use their credit cards. Things seem to be going great – until you notice something a little unsettling.
You knew when you opened your merchant account that you’d have to pay for credit (and debit) card processing, but $0.15 or $0.20 per transaction (in addition to the percentage charge) didn’t seem like it would be a big deal. Unfortunately, a lot of your customers come in and only buy a single item, maybe something for $3.00 or less. They don’t carry any cash and want to use their credit card. However, your margins are so thin on low-priced items that the fixed per-transaction fee you pay for processing can wipe out your profit. In fact, you might even lose money on some sales if the customer uses a credit card.
Naturally, you’d like to avoid this situation altogether. You remember being in other stores that had a policy of only accepting “plastic” if the total sale was at least a certain amount (say, $10.00, for example). You’d like to implement a policy like this yourself, but you’re not sure if it’s legal.
In this article, we’ll review the laws and agreements that govern setting a minimum amount on credit and debit card transactions. We’ll also discuss the pros and cons of doing so, even in situations where it’s perfectly legal. After all, you don’t want to risk losing sales when customers either can’t or don’t want to buy enough items to meet your required minimum. Finally, we’ll review the differences between setting a minimum purchase requirement on credit card and debit card transactions.
Table of Contents
What Is A Minimum Purchase Amount?
A minimum purchase amount is the smallest transaction value at which a customer can pay by credit card.
For example, if you set a minimum purchase amount of $5, your customer would need to purchase at least $5 worth of goods or services if they want to use their credit card.
Is A Minimum Purchase Amount Legal?
The short answer is “yes.” However, there are several legal and contractual limitations to doing this. You’ll want to understand all the applicable restrictions on this practice before you try to implement it in your business.
Prior to 2010, setting a minimum credit card charge was governed entirely by the processing agreements set forth by the major credit card associations (i.e., Visa, Mastercard, etc.). Every major card brand prohibited the practice, because they wanted to make money off credit card usage and they simply didn’t care if merchants lost money on small-ticket transactions.
However, in 2010, the Federal government weighed in on the issue. When the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by Congress in the aftermath of the Great Recession of 2008, it took many steps to rein in the reckless behavior of the big banks that had contributed to the recession. Part of this legislation, the Durbin Amendment, contains the following provision:
(3) NO RESTRICTIONS ON SETTING TRANSACTION MINIMUMS OR MAXIMUMS.–A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to set a minimum or maximum dollar value for the acceptance by that person of any form of payment.
Minimum Purchase Amount For Credit Cards
In other words, the Federal government has effectively overruled the previous contractual limitations imposed by the credit card associations. Merchants are now free to set a minimum purchase requirement if they want to. As of this writing, the highest allowable minimum purchase requirement that merchants can set is $10.00. You’re free to set a lower requirement if you want to, but you cannot set a limit above this amount.
While the credit card associations can no longer stop you from setting a minimum purchase requirement, they have modified their processing agreements to ensure that any minimum imposed is fair and equitable. Visa, Mastercard, and Discovery all have several stipulations on setting minimum charges in their processing agreements. The gist of these stipulations is that a minimum purchase requirement, if imposed, must treat all credit cards and all issuing banks equally. In other words, you can’t require a minimum purchase for Visa, but not Mastercard. You also can’t set a minimum purchase for one issuing bank, but not another.
Minimum Purchase Amount For Debit Cards
So does it work the same for debit cards? Unfortunately, no.
With few exceptions, the general rule is that you cannot impose a minimum purchase requirement for debit card transactions. The Amendment doesn’t prohibit the debit card associations from imposing their own restrictions on minimum purchases the way it does for credit cards. As you might expect, the card networks responded to this change in the law by immediately strengthening their prohibitions against minimum purchase requirements for debit cards.
Depending on your processing rate plan, this difference may have a small or significant impact. If your merchant account uses an interchange-plus or membership-based processing rate plan, the inability to set a minimum purchase requirement won’t be a problem. That’s because both of these types of plans pass interchange and PIN debit network fees directly onto you. On the other hand, flat-rate pricing, such as that offered by Square (see our review), charges the same rate for both credit and debit cards, essentially treating debit card transactions as if they were credit card transactions. While this makes your costs much more predictable and easy to understand, it also means that you’re paying far more than necessary to process debit card transactions.
If you’re paying the same processing rates for both debit and credit card transactions, can you still impose a minimum purchase requirement that applies to both types of transactions? You would certainly be justified in doing so since you’re paying an artificially high amount for accepting debit cards. The answer is that it will depend on your processing agreements with the major credit card associations and your contract with your merchant account provider. We recommend that you refer to those documents before setting a minimum purchase requirement. You might also consider imposing a minimum purchase requirement that only applies to credit card transactions, especially if you’re paying fair market rates for debit card transactions through your processor.
For more details on how debit card transactions are processed, please see our article, The True Cost Of Debit Card Transactions.
Considerations Before Implementing A Minimum Purchase Amount
Just because you can set a minimum purchase amount doesn’t necessarily make it a great idea. Let’s take a look at some pros and cons.
- You won’t lose money on small transactions
- Credit cards remain an option for your customers for larger transactions
- Simple to implement and enforce
- May improve your profit margins
- Cashless customers may not buy anything
- Your shop may be considered less convenient than a larger business that can handle the costs
- Finding the ideal minimum purchase amount may take some trial and error
- Not useful for businesses whose transactions are mostly over $10.
- You’ll need to keep more cash on hand for cash transactions.
Other Ways To Save On Credit Card Costs
Minimum purchase amounts can be a useful tool for small businesses that sell small-ticket items, but there are other ways to save money on credit card transactions. Each of these come with their own pros and cons, so make sure they fit your business type and strategy.
- Switch To Interchange-Plus Or Membership Pricing: High-volume, low-ticket merchants can reduce their transaction costs by switching to more favorable contracts. Interchange-plus or membership pricing plans give you the lowest per-transaction processing costs, and you shouldn’t need to implement a minimum purchase requirement at all. However, the math may not work out for lower-volume merchants.
- Switch Processors: If you switch, you may qualify for better rates than you’re getting with your current processor.
- Pass The Costs To Your Customers: This is the practice of passing your processing costs onto your customers by adding a surcharge to credit and debit card purchases or charging a convenience fee. We recommend you exercise caution in considering this option. While surcharging is now legal in most (but not all) jurisdictions, it can result in lost sales unless you’re in an industry where the practice is common and accepted. For more details, please see our article, Your Complete Guide to Credit Card Surcharges.
- Cash Discounts: Similar, but slightly different than surcharging are cash discounts. This is the practice of offering customers who pay with cash a discount rather than applying a surcharge for credit card transactions. Check out our list of cash discount programs to find providers offering these plans.
- Accept Alternative Payment Methods: Credit cards and cash aren’t the only games in town. From ACH payments to peer-to-peer transfers to cryptocurrency, there are a number of other ways to do business that can be both secure and cost-effective.
The Bottom Line On Minimum Purchase Amounts
Now that we’ve thoroughly discussed the legalities of minimum purchase requirements, you should be well-equipped to evaluate whether or not minimum purchase amounts are a good idea for your business. Remember, most consumers are oblivious to the fact that accepting credit and debit cards costs you money, so be prepared to explain why you’re implementing the policy.
Implementing a minimum purchase requirement also means that you’ll have to educate your employees to enforce it. Make sure they understand the difference between a credit card and a debit card. This isn’t as obvious as it sounds, as most debit cards are sponsored by either Visa or Mastercard. They’ll also need to understand the difference between PIN debit and signature debit, as you usually won’t be able to enforce a minimum purchase requirement on PIN debit transactions.
If you do decide to implement a minimum purchase requirement, make sure that you set it as low as possible to reduce the frequency of lost sales and frustrated customers. Under no circumstances should you implement a minimum that exceeds $10.00 – customers can report you to the credit card associations, and you’ll probably have your merchant account shut down. You might even end up on the Terminated Merchant File (TMF, or MATCH list), making it that much more difficult to find a new processor.
If you’ve read this far and come to the conclusion that your best option is to switch to a different merchant account provider, we can help. Check out our Merchant Account Comparison Chart for a side-by-side comparison of the best providers in the industry.