Can I Impose a Max on Credit Card Customers?

Dear Your Business Credit,

Can a business limit the size of purchases that customers can charge to their credit card? We sell custom cabinets that can cost $70,000 or more. When customers, say, use American Express, the fees can really add up for us. And not knowing what method of payment will be used sometimes catches us off guard in pricing.

- Gena

Dear Gena,

It's smart to examine every aspect of your overhead, including credit card processing fees. Even seemingly small charges can eat away at the profits of a small business over time.

To answer your question, I turned to J. Craig Shearman, vice president of government affairs and public relations for the National Retail Federation (NRF) in Washington, D.C. It appears that you are free to impose a ceiling on consumers' credit card purchases.

"As far as I am aware, there is nothing in federal law that would prevent a merchant from setting a maximum payment," he said in an email. However, he noted that the NRF does not track everything that happens at the state level. You might want to check into state laws, perhaps by contacting your state attorney general's office, to find out if there are any additional laws that apply in your area.

That said, Shearman says he has not heard of any merchant setting a maximum payment for purchases. To me, that's not surprising. Imposing an inconvenience, especially for large purchases, could potentially cause customers to go elsewhere.

Before setting a limit, I'd try to get an understanding of why customers are using credit cards to buy your cabinets. Is it because they have not saved cash to pay for them and view the cabinets as a big purchase to be financed over time? If almost none of your customers are paying by check or debit card, it's possible that they can't afford to buy the cabinets without credit. If that turns out to be true, you may find that some will not want to pay for any part of a purchase above your limit in cash -- and will instead find another cabinet supplier. You may be better off raising the price of your cabinets slightly so that you maintain your profit margins when customers use a card with higher swipe fees.

Being short on funds may not be the only reason for consumers to finance your cabinets. Even if your customers have saved cash to pay the bill, they may not want to do that. Some might want to earn mileage points or other rewards when they make a large purchase. A $70,000 purchase can result in a lot of points. Or they may feel more secure knowing that if they are not happy with the purchase and want to dispute the charge that they can turn to their card issuer to intervene on their behalf.

In response to your example about fees associated with American Express cards, I asked Shearman if it is possible to impose a maximum purchase on consumers using cards from one issuer and not others, such as Visa or MasterCard.

"I have not heard of anyone seeking to do that or any law affecting it one way or the other," he replied. "Since Visa/MasterCard swipe [fees] can go as high as 4 percent, I'm not sure that there is enough of a difference in the fees for there to be a point to it."

However, he noted that AmEx does have some provisions in its contracts "to the effect that you can't impose conditions on AmEx that you don't also impose on all other cards," he said. "You would have to check with them to see if it would apply in this situation."

As Shearman notes, card company contracts with merchants play a major role in regulating how they are used. The most recent notable exception is the provision that allows retailers to impose a $10 minimum purchase requirement for credit card customers. That was ushered in by the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in 2010.

"Before that was passed by Congress, card companies contractually prohibited a minimum charge but there was nothing 'illegal' if a merchant did it,'" Shearman noted. "Congress gave merchants the right to have a minimum purchase but Congress did not 'make it legal' since it was never 'illegal.'"

That said, even if it's legal to impose a limit on how much customers' may buy on their credit cards, it's not a decision to take lightly. Since losing even one sale may cost you a substantial amount of revenue, it's important to understand your customers' behavior -- and any contracts you've signed -- before you change any policies. Paying attention to the payment options that other businesses in your area offer for similar-sized purchases may help you make a more informed choice.