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Why Do Some Stores Have Credit Card Minimums?

Credit Card Basics, Credit Cards
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Some stores have credit card minimums

You have run into the credit card minimum issue at some point. You are at a store of some kind, you buy four bucks worth of stuff, you pull out your rewards credit card to pick up those four measly points, and … The merchant looks at you with daggers in his eyes. “Ten dollars is the credit card minimum,” he growls.

You mumble some apology and sheepishly reach into your wallet for cash. That’s when you notice the sign on the back of the register, staring you in the face: “$10 minimum for credit cards.” The merchant glares. You complete the transaction and hastily retreat through the exit.

Credit card minimums have a purpose

“What is his problem?” you wonder.

The problem is this: Merchants have to pay fees every time a credit card transaction occurs. At a minimum, there’s an interchange fee of 2% or higher for each swipe, usually around 2.9%. In other cases, card issuers will also assess a minimum charge per swipe.

So the total amount assessed may be rather high, and merchants hate having to pay fees on a four-dollar item, on which they are probably making very little profit anyway.

How many fees get charged? Just look at this chart.

So, let’s say you are the merchant. You bought an item wholesale for $2. You sell it at $4. Swipe fees may cost as much as 40 cents. Your profit isn’t two bucks now. It’s $1.60.

» MORE: Are credit card convenience fees legal?

It matters to merchants

Sound like splitting hairs? Not if you are the merchant. If you are selling inexpensive items, your profit margin is probably extremely thin to begin with, so that 40 cents could make a big difference.

That’s why merchants get grumpy about credit cards. You have to accept credit cards, though, because everyone else does. If you don’t, you may lose business to others. Cash isn’t convenient for people anymore.

How minimums started

Under the Durbin Amendment, credit card minimums were not permitted by Visa, Mastercard, and other issuers. Likewise, the banks frowned on the process. That’s because they are the ones collecting the swipe fees.

The Durbin Amendment officially prohibited the practice of prohibiting minimums. The law reads, “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.”

Pretty clear.

The Federal Reserve was given the power to set the minimum, which it has, at $10.

Remember the poor merchant

So while it may be irritating and annoying for you to have to pull out cash for credit card minimums of $10, you really should put yourself in a merchant’s shoes. With tight margins and swipe fees alone, things are tough. There are also added costs having to do with security and compliance.Running a business is expensive.

 Key store image via Shutterstock