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Plastic Police: How Merchants Gouge Credit Card Users

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It might not always feel like it, but paying for a purchase with a credit card can be more of a blessing than a curse. 


Yes, credit card companies sometimes increase their interest rates to exorbitant heights with little notice. Yes, they hike fees and impose penalties, along with other sneaky tricks. Yes, credit card debt can decimate a person’s finances. Still, when used wisely, credit cards protect consumers from fraud and provide a valuable link to extra cash when they need it. 


Studies show that customers spend more money when they’re allowed to pay with a credit card, so in theory, merchants should like credit cards, too, even though they have to pay a fee in order to accept them. That’s why it’s frustrating to go into a store and be made to feel like using your card is an inconvenience to the establishment. Merchants employ lots of sneaky ploys to subtly discourage the use of credit cards, but some of these common behaviors are actually against the rules set forth in the merchants’ contracts with Visa, MasterCard, American Express, and the like. The next time you pull out the plastic, be on the lookout for these tactics. They’re not just shady moves—they actually constitute a breach of contract. 


Minimum Purchase Requirements
No establishment is allowed to require its customers to spend a certain amount of money simply for the privilege of using a credit card; if it does, it’s breaking its contract with the credit card company. MasterCard’s contract states: “A merchant must not require, or indicate that it requires, a minimum or maximum transaction amount to accept a properly presented card.” When a merchant tries to impose a minimum purchase for credit cards, he’s probably trying to either encourage cash sales or force customers to spend more money (or both). Sometimes businesses try to discourage customers from using credit cards just because of the amount of time that goes into processing a credit transaction. If you’re in a store that tries to enforce a minimum purchase for credit cards, calmly remind the cashier that it’s a breach of the store’s merchant agreement. If the merchant still won’t budge, threaten to take your business elsewhere. Most places will give in and allow you to buy only what you need, since they’d rather have a credit card purchase than no purchase at all. 


Credit Card Surcharge
I tended bar after college, and one place where I worked tacked on an extra fee whenever a customer paid with a credit card. The owner wanted to recoup his merchant fees, which are, on average, 2 to 3 percent of each purchase. We told customers that we had to charge “sales tax” on credit cards, when in reality, those few extra bucks were simply to reimburse the owner for the money he paid to his bank and the card companies. Most people saw our charge for what it was: an unauthorized fee that can get a business into very hot water with its bank. According to American Express, “merchants must not impose any restrictions, conditions, disadvantages, or fees when the card is accepted that are not imposed equally on all other payment products.”   


However, while it’s a breach of contract to charge extra for using a credit card, it’s not improper to give a discount for paying cash. When gas prices soar, many service stations advertise their “cash price” and their “credit price.” As long as the charges are presented as a “cash discount,” rather than as a “card penalty,” they’re legitimate. 


Adding an Estimated Tip
If you use your card anywhere you might leave a tip, sometimes you’ll find that the business authorizes your card for an extra 15 or 20 percent to cover the cost of an “estimated tip,” but this infraction is explicitly prohibited and the credit card companies take it very seriously. The card companies understand that sometimes people tip in cash or leave an amount lower than the business might estimate, and if a merchant authorizes too much, the cardholder’s available cash or credit will suffer. If you check your statement immediately after using a card at a restaurant or salon, the authorization should be only for the base amount, and the tip should be the last portion of the charge to be processed. If you ever incur overdraft fees or penalties because a merchant authorized an estimated tip, you should ask for a refund. 


Requiring Cardholder Identification
The burden of detecting fraud falls on the merchants, so it’s common practice to ask for an ID with a credit card transaction. However, if a customer doesn’t have an ID or doesn’t want to show it, the merchant cannot refuse the purchase on that basis alone. Visa’s merchant agreement states, “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.” If your signature matches the one on the card and the card shows no signs of being tampered with, merchants must accept the card. 


But what if your card is unsigned? Technically, merchants are under no obligation to accept unsigned cards; in fact, Visa and MasterCard both discourage it. If your credit card is unsigned when you try to make a purchase, the merchant can decide whether to honor the card. If he does, he must ask for your ID and should also ask you to sign the card in his presence. 


What to Do?
Merchant agreements are full of things that merchants are not permitted to do, such as favor one card over another or bill a customer before his or her goods have been shipped. If you notice that a business has broken its contract and pulled any of these tricks, the best way to fight back is to call the credit card company itself, which can track down the merchant’s bank and payment-processing company. Visa, MasterCard, and American Express have a vested interest in knowing when their merchants are breaking the rules, since they want customers to be able to use their cards freely and easily (so that they can collect the fees, of course). A business found to be in violation of its contract could receive a hefty fine and will surely think again before trying to pull a fast one on its customers.

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