Half of L.A.’s businesses breakin’ the law!

(Okay, not so much breaking the law as breaking merchant rules for using credit cards… and by half I just mean “a lot.”)

Did you know that MasterCard and Visa both prohibit merchants from having “minimum purchases” to use their credit cards?

While I’ve known this for some time, and have addressed it with the businesses that have a $10 or similar minimum purchase requirement, they deny that it is possible and I usually walk away without spending a cent.

Has anyone else challenged local businesses on this rule?

21 Replies to “Half of L.A.’s businesses breakin’ the law!”

  1. Rather than say anything to the drone at the counter who has no idea whats up, I just report them…but I can’t find the link anymore. That site you link to has the snail mail way to complain, but at one point I’d had the web link that allowed you to rat ’em out for being jerks.

    They are also not allowed to ask for ID…which I wish the credit card companies would push as well because frankly I don’t particularly care to have a random clerk having access to my info via my DL.

  2. I have to disagree with you on the latter point, Regina. After having my credit card stolen twice, I am more than happy to have people ask for my ID.

    On the former point, the owner of Panpipes on Cahuenga actually told me the “no minimum” rule, which is refreshing from an independent store owner.

    I’ve never challenged it, but I’m tempted.

  3. I’m tempted to challenge it too – trying to order takeout in Hollywood is doubly difficult since so many restaurants require a minimum for a credit card purchase.

  4. Regina,
    I believe they are allowed to ask for a verifying form if ID, but they aren’t allowed to record the info… such as your DL#. I will need to search for the link, if one exists, to report this annoyance more easily.

  5. I didn’t know merchants weren’t allowed to make a “minimum purchase” rule, so I went googling and found this on Visa’s site:

    http://usa.visa.com/about_visa/ask_visa/index.html#anchor_4

    Minimum Purchase

    Visa merchants are not permitted to establish minimum transaction amounts, even on sale items. They also are not permitted to charge you a fee when you want to use your Visa card.

    If you run into a problem like this with a merchant, please notify the financial institution that issued you your Visa card. These institutions have access to the appropriate Visa rules and regulations and can help you document and file your complaint. You’ll find their address and/or telephone number on your Visa statement. Their telephone number may also appear on the back of the card itself.

  6. I hate when they do that. The India Sweets and Spices (hole in the wall Indian restaurant) on Venice Blvd. in Culver city has a minimum charge and I’m about to report them to my credit card company.

  7. Why do these independent businesses have a minimum?

    Because the way Visa and MC fees are structured, Visa and MC take 2.5% of your purcase or 50 cents per transaction, whichever is more. (I’ve forgotten the actual amounts since my retail management days, but these are close.) Therefore for purchases under $10, the credit card company makes any margin there was, and the store maybe breaks even or sometimes loses money.

    You can turn them in for trying to make money and Visa or MC will charge them a fine or take away their Visa and MC priviledges, but don’t complain when the independent stores are gone and the variety of indian spices at Walmart aren’t quite to your liking.

  8. Are you really insisting that small, local businesses take a loss on your sale?

    All you’re accomplishing is taking any profit from the transaction and giving it to Visa, instead of independent stores.

    Why do you think Visa has the rule? Because they want to help consumers? Please. It’s profit for them, and merchants have no choice but to sign up if they want to survive.

    Not only is it arrogant to expect these businesses to WANT to take a loss, it’s lazy — is it really so hard to carry a $10 around?

  9. Are you really insisting that small, local businesses take a loss on your sale?

    There is some validity in this argument, but those same business also lose sales volume and lose customers to other businesses that don’t have minimum transaction requirements. Establishing a minimum is a short-sighted solution that doesn’t actually solve the problem.

    And if you’ve got to establish a $10 or $20 minimum to make your 50¬¢ margin then something’s wrong with your business model. A $5 minimum, maybe.

    Not only is it arrogant to expect these businesses to WANT to take a loss, it’s lazy — is it really so hard to carry a $10 around?

    For one: Yeah, it is. When’s the last time you saw an ATM that will issue you a $10 bill? Believe it or not, plenty of people live their lives with with less than $20 in their bank accounts as a regular fact of life.

    For two: Dude, it’s 2006. It’s the era of microtransactions. If I don’t want to carry any cash at all I shouldn’t have to. Welcome the 21st century.

  10. There’s a business logic to low-margin sales if you make it up on volume. There’s NO logic to actually LOSING MONEY on a sale. Then, if you do high-volume, you just… lose more money.

    If they raise their prices to increase margins, then they’d lose all of their business, not just the credit card users. These are businesses like pizza joints and Thai restaurants. They don’t have much room to raise prices.

    If you’re saying it’d be great if transaction costs were reduced to a level where it’s profitable to use Visa on >$10 buys, then sure. That would be great. Very modern.

    But that’s a problem for Visa and other technological types to solve. In the meantime, I don’t see why small merchants should take a loss on a sale.

    I’m not saying it’s so easy for you to find an ATM, I’m saying it’s not the merchants problem that you have failed to do so.

  11. Some other points:

    1. I actually wrote this because I tried to buy a pretzel dog at the Grove. They had a $10 minimum. For a pretzel store.

    2. Most ATMs charge customers $2 or so to withdraw cash. Granted, you can always pull out cash at your own bank’s ATM, but while out shopping and impulse buying this isn’t always an option.

    The larger issue is that business owners know the rules when they begin to accept credit cards. Worse, they often deny that this is the truth. Why not be honest and just request that customers use cash for smaller purchases?

  12. There’s a business logic to low-margin sales if you make it up on volume. There’s NO logic to actually LOSING MONEY on a sale. Then, if you do high-volume, you just… lose more money.

    The people who run movie theaters, gas stations and ski resorts would be very surprised to hear that. Have you ever heard of a loss leader? And even if you’re not using that model, if you’re losing cutomers and potentially larger sales volume because people go elsewhere to avoid potential minimum purchase rules then you’re still losing more money in the long run. That’s why I say it’s short-sighted. There absoultey ARE logical reasons to lose money on a sale, especially if, in reality, you’re talking about absorbing a very slim number of unprofitable transactions in order to offset other, larger losses either in sales volume or size.

    But that’s not what most of those places are doing anyway. Instead they’re maximizing short-term profits at the expense of customer service, and they’re also trying to encourage larger purchases. I totally agree that a lot of small businesses don’t operate on a huge margin, but there’s no way in hell that most Thai restaurants, to use your example, are making less than 50¬¢ per $10 transaction. The businesses that operate on those kinds of margins are places like convenience stores, which usually don’t enforce minimums.

    I’m not saying it’s so easy for you to find an ATM, I’m saying it’s not the merchants problem that you have failed to do so.

    It is if I can’t come do business at their establishment because there’s no such thing as a $10 ATM and they won’t take my card.

  13. Actually, in many markets outside of CA, ATMs give out 10s – even, no seriously – 5s!!!! Crazy, ain’t it.

    Do these rules apply to visa credit cards only? Can they vary the rules for “debit cards” – what about small gas station chains charging $.45 fees for using the ATM to buy gas? That’s been challenged in court and upheld as A-Okay.

  14. Actually, in many markets outside of CA, ATMs give out 10s – even, no seriously – 5s!!!! Crazy, ain’t it.

    If you can believe it, until just a few years ago there was an ATM on La Brea that actually gave out CHANGE! I always thought that was pretty cool.

  15. Debit cards are a completely different system, and MUCH cheaper per transaction. Credit card companies have colluded to prevent more widespread adoption of the more efficient debit system. (Transmitting a few digits back to a bank over a phone line is cheap and easy; flinging pieces of paper with a scrawled pen mark in duplicate is archaic bullcrap.)

  16. Actually, in many markets outside of CA, ATMs give out 10s – even, no seriously – 5s!!!! Crazy, ain’t it.

    On a trip to the UK in 2004, I used a Bank of Scotland ATM and was thrilled to get my ¬£40 in a mix of ¬£5, ¬£10, and ¬£20 notes. In fact, I could request amounts in ¬£5 increments. Wish they’d do that here. Also, I don’t think that ATM charged me a fee for not being a Bank of Scotland customer either.

  17. I’m all for small businesses, but I think the problem here is that by setting a minimum purchase when they’re not allowed to do so really makes it feel like they’re taking advantage of customers who don’t know any better. If they want to frame it in the form of a REQUEST for customers to use cash for small purposes, that’s fine. But Starbucks will take my credit card for a $1.50 coffee purchase, and I haven’t driven them out of business yet.

  18. I’ve seen this a few times in bars too. Where they tell you there is a minumum for crredit card transactions. It’s good to know it’s illegal.

    I mean, say I spend $8 bucks on something in a store. It costs them .50 cents for me to use my Visa. I very much doubt that the product I am buying cost them $7.75 and they are now going to lose money by paying .50 to visa. Most places double or triple the wholesale prices anyway.

    So in all reality the item you are buying has to be priced less than $1.50 (or so, minus labor and space rental cost, etc) for them to lose money. Their profit margin may decrease for that one trasaction. But if I know I can use my card there, for any amount, I’ll possibly return again and again, increasing their profit in the long run even more.

  19. To clarify again, minimum charges aren’t against the law… just against MC and Visa rules.
    However, there’s little benefit to the credit card companies to enforce this, as the more you spend the higher bigger cut they get from the purchase.

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