Legal to discourage certain types of credit cards?

[SeanArenas]

By legal, I mean even violating the agreement between merchant and bank or credit card company.

I went to Quiznos and paid with a gift card. The remaining amount was $3.88 or something. Out of habit, I hand him my American Express (I get 3% cash back when I use it for food, so I developed that habit).

The guy asks if I can use a different card. I show him a Visa and ask if they just don’t take Amex. He says they do, but Amex charges him $2.50 every time it’s used.

He points at my Visa and tells me he’s only charged $1.00 to swipe a Visa.

So here I am thinking, the guy is going to get dinged $1.00 for swiping a Visa to pay for $3.88 of food? Feeling bad for the guy, I paid with cash.

But while driving home, I was thinking … if it’s such a burden on him to take Amex, why does he take it?

And then I remembered that Amex has strange clauses in their agreement that say things like, you can’t discriminate against our card in any fashion that you don’t also discriminate against Visa cards. It’s worded in several different ways about different kinds of actions.

If the credit card companies are encouraging me to use their card to pay for these things (incentivizing me with 3% on food from Amex, 2% on food from Amazon Visa), that probably means they want me to use the card at those vendors, I’m assuming because they charge that surcharge to the vendor, and they’re also hoping I carry a balance and pay a big fee.

So does Amex (or Visa, for that matter) care that the merchant is discouraging customers from using their credit cards? I’d bet they would.

How about disclosing the amounts they’re charged? Isn’t that between the merchant and the credit card company?

[Joey_P]

American Express tends to be used by businesses. If he really doesn’t want to accept it, he’s probably doing it because of the catering business he’d lose. At our store, about 13% (off the top of my head) of our business is catering. If we didn’t accept Amex, that would be closer to 1 or 2% I’d guess. Also drug reps (our biggest clients) almost all use American Express. We’d lose all that business if we didn’t accept it.
Now, if he’s telling you it costs him $2.50 per transaction to take Amex, I’d guess he’s mistaken. In general credit cards take a flat rate* plus a percentage while debit cards are a flat amount.

That flat rate is generally between 5 and 15 cents, again, off the top of my head.

[Joey_P]

I just glanced at a statement. Our discount amount on average per sale is about $4, BUT the percentage is about 3%. So I’m guessing what he pays, on average might be $2.50, but for your little sale it might have been closer to 15 or 20 cents. If his average is $2.50 per sale, he might have a lot of big ticket transactions, most likely for sales people that are treating clients to lunch. If you want to find out, go in around 11:00ish and see if there’s people walking out with $150 worth of food.

ETA since he does want you to use a different method of payment (preferably a credit over a debit card for such a small transaction since the flat rate + percentage will likely be lower then the flat rate of a debit) he may have been exaggerating that number to make a point.

[MPB_in_Salt_Lake]

Theres a bar that I occasionaly stop at for a few beers, and they have a 10 dollar min. purchace for any credit/debit transactions. I suppose its a way to make up the fees that the CC company charges, but I try and pay in cash, so I dont have to spend 10 bucks each time (the draft beers are $1.25 each so ten dollars goes a long way)

[SeanArenas]

I guess it just felt wrong to be pressured into a different form of currency during my purchase.

What he’s doing is increasing his corporate purchases to a higher percentage by reducing my walk-in purchases.

I don’t ever want to have to balance me getting 3% of the purchase amount vs. him being charged that same 3% - if I get a 3% discount for using one form of payment, I’ll do that. I didn’t see him offering me a $0.12 discount for using cash, just giving me a hard luck story about how much he’s charged. Now I find out I basically just gave him the 3% rebate/discount I should have gotten for that transaction…

[SeanArenas]

Would it have been legal (by the agreement with Amex or whoever) for the guy to offer me a discount for using cash? If he knows I’m going to earn 3%, but he’s going to be charged more than 3% on the transaction, can he offer me a 3% or 5% discount if I use cash instead?

Is it OK for me to ask him for that, if he tells me he wants me to use a different form of payment?

[Gus_Gusterson]

@SeanArenas

Would it have been legal (by the agreement with Amex or whoever) for the guy to offer me a discount for using cash? If he knows I’m going to earn 3%, but he’s going to be charged more than 3% on the transaction, can he offer me a 3% or 5% discount if I use cash instead?

Most credit card merchant agreements say that the merchant can offer a discount for cash purchases, but cannot charge a surcharge for credit card purchases.

What you get back as a rebate from the credit card has nothing to do with the restaurant. The credit card issuer pays you that 3% from their cut of the transaction. The sandwich guy wouldn’t care whether they give you 1% or 100%.

Is it OK for me to ask him for that, if he tells me he wants me to use a different form of payment?

You can ask. Note that he has the right to refuse your business because you are a pain.

[mhendo]

@SeanArenas

So does Amex (or Visa, for that matter) care that the merchant is discouraging customers from using their credit cards? I’d bet they would.

I don’t know what AmEx’s official policy is, but the Visa merchant agreement specifically prohibits things like minimum charges for Visa card use. If a merchant accepts Visa, then Visa expects that the merchant will take a Visa card for any transaction. Those stores that have signs saying “$10 minimum purchase for credit cards” are actually in violation of the Visa merchant agreement.

Of course, as you realize, violating this agreement is not illegal, in any criminal sense. It is a matter of breaching the contract that the merchant signs with Visa. Basically the only recourse Visa has, if a merchant breaks the contract, is to drop the merchant so he can’t take Visa anymore. And for this to happen, someone has to report the merchant to Visa.

I’ve been on finance and consumer message boards where people discuss this issue, and some folks have actually gone so far as to report merchants to Visa for stuff like this. The general result seems to be that Visa doesn’t really care very much, and is unlikely to do anything to the merchant unless they get lots of complaints.

Here in California—and probably in many other place too—hundreds of merchants commonly violate another Visa condition when they ask to see ID with the credit card. Visa, and other companies like Mastercard, explicitly state that acceptance of the card is not conditional on presenting identification. The Rules for Visa Merchants (PDF) says:

Although Visa rules do not preclude merchants from asking for cardholder ID, merchants cannot make an ID a condition of acceptance Therefore, merchants cannot refuse to complete a purchase transaction because a cardholder refuses to provide ID Visa believes merchants should not ask for ID as part of their regular card acceptance procedures.

p. 29

Here’s a Consumerist article from a few years ago about credit cards and minimum purchases. The final paragraph contains some info about American Express.

@Gus_Gusterson

Most credit card merchant agreements say that the merchant can offer a discount for cash purchases, but cannot charge a surcharge for credit card purchases.

The state of California actually has a similar policy written into its law. From the California Civil Code:

Section 1748.1

(a) No retailer in any sales, service, or lease transaction
with a consumer may impose a surcharge on a cardholder who elects to
use a credit card in lieu of payment by cash, check, or similar
means. A retailer may, however, offer discounts for the purpose of
inducing payment by cash, check, or other means not involving the use
of a credit card, provided that the discount is offered to all
prospective buyers.

[HorseloverFat]

All these things are legal. State and federal law protect the business owner when it comes to payments. For instance he can put up a sign that reads “Pennies only” and he can throw you out of his store for any reason. You certainly do not have a right to come in with some obscure currency or something of value and demand service. Your rights in this situation are very limited, and rightly so! I grew up in the family business, and you would not believe the bullshit we put up with. I have a lot of sympathy for the small businessman, but do draw the line with credit card cheapness.

Secondly, yes, there used to be cash and credit pricing. People found it too confusing, especially at gas stations, so they got rid of it. The idea now is that prices reflect credit fees but the guy manning the register doesnt understand this or is just super cheap. Hes going to get hit with 2-4% with any card. I doubt this would be against any agreement.

Thirdly, I also dont like this attitude. Why do businesses get free pass to whine about credit cards but they accept every other expense and tax as “doing business.” Its especially odious from cab drivers. I guess guilting you into using cash is something they can control, so they try it. Im pretty considerate but it does get annoying in situations where you dont have cash. Places that dont take credit and expect you to pay 4 dollars in ATM fees so they can save 3% dont get my business. Raise your prices 3% and get a credit card machine already.

[mhendo]

@HorseloverFat

Secondly, yes, there used to be cash and credit pricing. People found it too confusing, especially at gas stations, so they got rid of it.

Not everywhere. There are at least 4 gas stations within a mile or so of my house that offer lower prices for cash.

[gotpasswords]

@mhendo

Not everywhere. There are at least 4 gas stations within a mile or so of my house that offer lower prices for cash.

Same here. The rub is that I have no idea if the different prices are reflecting an unstated discount for cash or an unstated surcharge for credit cards. I do know that they charge the “cash” price if you use an ATM card with PIN.

[mhendo]

@gotpasswords

Same here. The rub is that I have no idea if the different prices are reflecting an unstated discount for cash or an unstated surcharge for credit cards.

Around here, it seems that it is effectively a discount for cash, because at the stations that do this, the cash price is usually lower than the regular price charged by other gas stations that do not differentiate between cash and credit. If you know what i mean.

@gotpasswords

I do know that they charge the “cash” price if you use an ATM card with PIN.

This is actually a legal requirement, according to this 2007 article:

Still, people have to be vigilant. Under California law, cash discounts at gas stations also must apply to debit cards, and motorists should make sure the station doesn’t tack on a debit-card fee, which can run from 25 cents to 45 cents and eat into the cash-price savings. Arco is known for this, but others are joining in. Look for a warning sign when you pay.

[SeanArenas]

@Gus_Gusterson

You can ask. Note that he has the right to refuse your business because you are a pain.

Understand - this would be ME asking HIM for a discount, just because HE has ALREADY asked me to use a different form of payment due to his high costs of accepting that form of payment.

How can you view this as ME being a pain?

I’ve refused to go back to the restaurant since that incident, so it’s me who is denying service for him being a pain, not the other way around.

[UltraVires]

The state of California actually has a similar policy written into its law. From the California Civil Code:
Quote:
Section 1748.1

(a) No retailer in any sales, service, or lease transaction
with a consumer may impose a surcharge on a cardholder who elects to
use a credit card in lieu of payment by cash, check, or similar
means. A retailer may, however, offer discounts for the purpose of
inducing payment by cash, check, or other means not involving the use
of a credit card, provided that the discount is offered to all
prospective buyers.

What a strange law. So, if I offer a product for $12/credit, $10/cash have I broken the law by imposing a credit card surcharge, or am I simply offering a permissible cash discount?

[mhendo]

@jtgain

What a strange law. So, if I offer a product for $12/credit, $10/cash have I broken the law by imposing a credit card surcharge, or am I simply offering a permissible cash discount?

I’ve often wondered the same thing. I’ve tried on multiple occasions to parse the law, and the only conclusion i keep coming to is that it really does nothing to prevent a credit card surcharge.

I guess one thing it might do is prevent discrimination between credit cards. For example, i’m pretty sure that AmEx charges merchants more than some other credit cards. This law would presumably prevent a retailer from adding a special surcharge for AmEx cards, and a different, smaller surcharge for Visa or Mastercard.

Maybe one of the board’s legal eagles like Gfactor or Bricker might be able to offer some insight as to the distinctions drawn by this law.

[Markxxx]

You can OFFER a discount for cash or other forms (such as store credit card) but you can’t add a surcharge.

Let’s say for example sake, you get charged $1.00 for each Visa transaction.

You CAN’T say this: “that radio is $25.00 but if you pay by Visa it’s $26.00.”

But you CAN say this: “that radio is $26.00 but if you pay by cash (or store credit card) it’s $25.00.”

See there is a difference, there are actually state and local laws the prohibit charging more for using credit cards. The reasoning for this is that when the cost of an item is figured a merchant is ALREADY adding the cost of credit card fees, so by charging more for the credit card, the consumer is getting dinged twice.

Some state and federal agencies exempt themselves for charging more for credit cards. This is why when you pay your income tax they can charge for using a credit card.

As for the original question, whether you can make a preference depends on your merchant agreement.

For example when I was the asst controller of a hotel, we had one merchant agreement for Visa/Mastercard, one for Amex, one for Discover, one for Diners and one for JCB.

Another hotel I was at we had Bank of America and they processed, Visa/Mastercard/Amex and JCB all together. So that was ONE BIG merchant agreement. Then we had another for Diners and Discover.

In our merchant agreement it says any credit card in that agreement has to be treated equally. So you couldn’t make any preference, but if a credit card wasn’t in that agreement you could. You also cannot make any preference to a debit or credit card if you carry the logo. In otherwords if you have a VISA logo, and someone presents it for payment you can’t treat it differently than if it’s a VISA credit card.

This of course causes no ending difficulties with authorization charges. Because people never understand the card is authorized not charged. By while it’s authorized the charges are “set aside,” so they can’t be used, but they aren’t being charged. After check out they should be released.

[Driver8]

@mhendo

I’ve often wondered the same thing. I’ve tried on multiple occasions to parse the law, and the only conclusion i keep coming to is that it really does nothing to prevent a credit card surcharge.

I guess one thing it might do is prevent discrimination between credit cards. For example, i’m pretty sure that AmEx charges merchants more than some other credit cards. This law would presumably prevent a retailer from adding a special surcharge for AmEx cards, and a different, smaller surcharge for Visa or Mastercard.

Maybe one of the board’s legal eagles like Gfactor or Bricker might be able to offer some insight as to the distinctions drawn by this law.

I think what it does is prevent them from advertising a price, but then charging a higher price when they see you are using a card. So if I drive by a huge sign that states “Apples, $1.00/pound” I won’t get all annoyed when I pull out my credit card and they try charge me $1.10/pound. I don’t think there is anything stopping them from charging me $0.90/pound if I tried to pay in cash.

[iamthewalrus_3]

@Markxxx

You can OFFER a discount for cash or other forms (such as store credit card) but you can’t add a surcharge.

Let’s say for example sake, you get charged $1.00 for each Visa transaction.

You CAN’T say this: “that radio is $25.00 but if you pay by Visa it’s $26.00.”

But you CAN say this: “that radio is $26.00 but if you pay by cash (or store credit card) it’s $25.00.”

See there is a difference, there are actually state and local laws the prohibit charging more for using credit cards. The reasoning for this is that when the cost of an item is figured a merchant is ALREADY adding the cost of credit card fees, so by charging more for the credit card, the consumer is getting dinged twice.

This is a semantic difference only, not a substantive one. Why should the law be concerned with such things? You’re assuming that the price of an item already takes the charges into account, but that’s not a given, nor does it match the example you gave. If it did, the difference would be evident. The first shop charges $25, and tacks on $1 to total $26 for the Visa. The second one charges $25, but discounts $1 to total $24.

[Gfactor]

STATES THAT PROHIBIT CREDIT CARD SURCHARGES

The following states prohibit merchants from adding surcharges to credit card transactions

    * California
    * Colorado
    * Connecticut
    * Florida
    * Kansas
    * Maine
    * Massachusetts
    * New York
    * Oklahoma
    * Texas.

http://www.gofso.com/Premium/LE/06_le_ic/fg/fg-merchants.html#MORE:B

Here is the Colorado statute: http://www.michie.com/colorado/lpext.dll/cocode/2/89e5/89fb/8b56/8b93/8c56?fn=document-frame.htm&f=templates&2.0#

Connecticut: http://search.cga.state.ct.us/surs/chap739.htm#Sec42-133ff.htm

Kansas: http://kansasstatutes.lesterama.org/Chapter_16a/Article_2/16a-2-403.html

Florida: http://www.alligator.org/pt2/050901charge.php

Maine: http://www.mainelegislature.org/legis/Statutes/9-A/title9-Asec8-303.html

Massachusetts: http://www.mass.gov/legis/laws/mgl/140d-28a.htm

NewYorK: http://www.oag.state.ny.us/bureaus/appeals_opinions/opinions/2006/formal/2006-F2.pdf

Oklahoma: http://www.oscn.net/applications/oscn/DeliverDocument.asp?CiteID=65796

Texas: http://www.statutes.legis.state.tx.us/DocViewer.aspx?K2DocKey=odbc%3A%2F%2FSOTW%2FASUPUBLIC.dbo.vwSOTW%2FFI%2FS%2FFI.339%40SOTW&QueryText=credit<OR>card<OR>surcharge&HighlightType=1

[Tim_T-Bonham.net]

@HorseloverFat

ThIts especially odious from cab drivers. I guess guilting you into using cash is something they can control, so they try it. Im pretty considerate but it does get annoying in situations where you dont have cash. Places that dont take credit and expect you to pay 4 dollars in ATM fees so they can save 3% dont get my business. Raise your prices 3% and get a credit card machine already.

No, the problem for cab drivers, tow truck companies, and the like is that besides the 3-4% credit card fee, you are also forcing them to do something else – report this income to the IRS!

It’s real easy in businesses like that to just pocket the cash payments from a few customers each night, and have a nice unreported, untaxed extra income. But when the customer pays with a credit card, there is a paper trail, and they have to report this income.