The Durbin Amendment: Three Years Later

The Pros and Cons of Setting Credit Card Minimums

When the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was first announced, many on both the merchant and consumer sides of the fence voiced concerns about some of its provisions. One of the concerns was the law’s provision that allowed merchants to impose minimum purchase amounts on credit, but not debit, card transactions.

It has been about three years since the Durbin Amendment went into effect, which makes now a good time to take a look at its impact on credit card sales, as well as strategies for merchants that are still wrestling with the issues involved.

A Little Background

The Durbin Amendment is a provision of the Dodd-Frank Act aimed at regulating debit interchange fees and increasing competition in payment processing. It requires banks to charge debit card swipe fees that are “reasonable and proportional to the actual cost” of processing the transaction.

But one of the hotly debated areas of the Durbin Amendment was the provision that allowed merchants to set minimum purchase amounts on credit card transactions for the first time (American Express® did allow merchants to set minimum purchase amounts for credit cards before the legislation, but Visa®, MasterCard® and Discover® did not). For years, many merchants wanted to be able to set minimums for using a credit card because card processing fees may reduce the profit on small transactions.

The Durbin Amendment allows merchants to establish a minimum purchase amount of up to $10 for customers who pay using a credit card, as long as all cards are treated the same. However, minimum purchase amounts cannot be set for customers who pay using a debit card.

The Federal Reserve has the authority to review the credit card minimum purchase amount periodically and increase the amount as it deems necessary.

Benefits and Drawbacks

It didn’t take long for many merchants to realize that there are pros and cons to setting minimums for credit card transactions. The biggest benefit, of course, is that setting minimums helps preserve the profit margin on small transactions. At convenience stores, gas stations, fast food restaurants and coffee shops, for example, transactions of $5 or less are not uncommon.

But many consumers like the convenience of being able to use a credit card, regardless of the amount of the transaction. Many young people, in particular, are now going cashless, preferring to use a credit card to pay for almost everything. By setting minimum amounts for credit card purchases, merchants run the risk of alienating these customers and driving them to their competitors.

In the final analysis, all merchants have to decide whether setting a minimum amount for credit card purchases is the right move for their businesses or not. The decision will hinge on such factors as the average ticket amount; the percentage of transactions that are small and end up unprofitable if a credit card is used; the demographics of the business’ customers; and whether or not small, unprofitable transactions often lead to larger purchases.

A Non-Issue So Far?

In at least one industry, it appears that setting credit card minimums has been a non-issue among consumers. A spokesperson for the National Association of Convenience Stores noted that anger has not materialized among convenience store customers yet with regard to credit card minimums. “From our perspective, we haven’t seen a big negative reaction from customers,” he stated. “They understand.”

If you do decide to impose credit card minimums, you can make the transition easier for customers by clearly communicating your policy and looking for other ways to show that you value and respect them. Also be sure to train your employees in how to politely and non-confrontationally deal with customers who aren’t aware of the policy or have questions about it.

Call PNC Merchant Services® customer service at 800-742-5030 if you have more questions about the Durbin Amendment and setting credit card minimums.

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