Debit Card Minimums: Merchant Rules and Rights
Are Minimum Purchase Requirements Illegal?
Merchants have to pay fees to process payments made with plastic. In an effort to manage fees, some retailers use minimum purchase requirements (for example, customers need to spend at least $10 to use a credit or debit card).
Minimum purchase requirements are technically not illegal, but they are certainly an annoyance to customers. What’s more, merchants are most likely breaking the terms of their agreements with payment processing providers if they impose minimums.
Confusion About Illegal Practices
Consumers often believe that debit card minimum purchase requirements are illegal. The confusion may be due to several laws that went into effect in 2013 governing how merchants deal with customers who pay with plastic. Two major changes took place, but neither of them outlawed minimum purchase requirements with debit cards:
Minimum purchases with credit cards are allowed, up to $10. Merchants can set minimums for credit card purchases if they want to. This is a result of a lawsuit that merchants won against credit card companies and banks. In the past, merchants set these limits “unofficially." The law did not address the issue, but it was a violation of the merchant’s agreement with credit card companies. Now, credit card companies must allow these minimums, and the U.S. Government set the limit at $10.
Adding surcharges to credit card payments is also allowed. Again, this applies to credit cards only. Because merchants pay fees every time you pay with plastic, they’re allowed to pass some or all of that fee on to you. However, some states outlaw this practice — even for credit cards. For more details, read about credit card surcharges.
Credit Cards vs. Debit Cards
Credit cards are payment cards that create a debt with the card issuer, and debit cards draw funds from your checking account (or a prepaid balance).
What’s the difference between how these types of cards are handled? For whatever reason, the law does not address debit card transactions from a consumer perspective. The laws did limit how much retailers have to pay when you pay with a debit card and their costs for accepting debit cards are generally lower than the costs of accepting a credit card. This is true even if you as the buyer use a debit card but choose a “credit” transaction at checkout.
Presumably, lawmakers assumed the lower costs associated with debit card payments meant that merchants would not have any reason to restrict their use. However, some debit cards are more expensive to process than others (for example, debit cards issued by small institutions can be more expensive).
So are merchants allowed to do whatever they want when you pay with a debit card? The simple answer is no. A merchant's agreement with card processing networks prohibits them from setting a minimum purchase amount for debit card transactions.
Nevertheless, some retailers may not realize that there's a difference between credit cards and debit cards, and some may just choose not to follow the rules. For example, Visa guidance to retailers includes the following statement:
Minimum purchase amounts cannot be applied to transactions that are processed with a debit card.
That same document provides instructions on training staff to spot the differences between debit cards and credit cards.
Reporting Debit Card Minimum Purchase Violations
What can you do about merchants who break the rules? It’s best to let them know that you think they’re doing something wrong. Especially when it comes to a small business, the business owner might not be up to speed on all of the laws. Things change quickly, and business owners have a lot on their plates.
Starting a conversation with your local business owner might be helpful for everybody. You might even feel some sympathy for them – accepting plastic is almost a necessity, but it’s expensive. Although the fees for accepting a debit card are generally far lower than credit card swipe fees, there’s still a cost. Keep that in mind as you make purchases, and pay with cash if you can. It may help your favorite business stay afloat, and it will help keep prices down for everybody.
If you believe that a business is blatantly ignoring the rules, you can report them to the card processing networks if you like.
However, because the merchant isn’t breaking any laws by setting minimum purchase amounts for debit cards, you won’t get much done if you report the business to your state’s Attorney General or to the Federal Trade Commission. Merchants are generally able to set whatever policies they want as long as they do not break federal or local laws.