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Dollars and Cent$ for Small Businesses -- New Rules for Electronic Payments Explained

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Dollars and Cent$ for Small Businesses -- New Rules for Electronic Payments Explained

By CeceliaT, SBA Official
Published: October 18, 2011 Updated: October 18, 2011

You may have missed a new rule from the Federal Trade Commission that took effect this month, beginning Oct. 1.  If your business accepts payment by credit or debit card, these new rules of the merchant superhighway may help you lower your cost of doing business.  

The rules deal with interchange fees for debit card transactions, the discounts on the purchase price you offer your customers when they pay in certain ways, minimum dollar amounts for credit card purchases, and the networks available for routing debit card transactions.

The new rules include provisions that:

  • limit debit card interchange fees that you pay each time a customer pays with a debit card;
  • gives you options for choosing the network you use for processing electronic debit card transactions;
  • prevent payment card networks and card issuers from designating an exclusive network for processing debit transactions; and
  • prevent payment card networks from imposing restrictions on discounts you offer to customers when they pay with a debit card.

What the rules mean for your business

Interchange Fees for Debit Cards:

As of Oct. 1, 2011, the interchange fees that you pay when a customer pays with a debit card are capped at 21 cents plus 0.05% of the transaction value.  If the card issuer meets specific fraud prevention standards, the fee may go up a penny.  This cap applies only to large card issuers — banks and other card issuers with $10 billion or more in assets (including assets of affiliates).  The Federal Reserve Board keeps a list of institutions exempt from the cap.

Which fees aren't subject to the cap?

  • Credit card fees.
  • Fees for debit cards issued by smaller card issuers.
  • Fees associated with government benefit cards; some certain reloadable, general-use prepaid cards; prepaid store cards; and transactions at automated teller machines (ATMs).
  • Other fees charged to your business by the acquirer [which provides payment card services for you] that may be included in the merchant discount. 

Discounts to Customers:

A payment card network (PCN) cannot stop you from offering your customers a discount or another incentive for using a certain method of payment, as long as you offer it to all your customers and disclose the offer clearly and noticeably.  For example, you can offer your customers a discount or a coupon if they pay with cash or a debit card rather than a credit card.  

But the new rules do not address other PCN restrictions that may prevent you from offering discounts or similar incentives that vary based on the use of a card from a particular issuer or a particular PCN.

What's new about that?

In the past, PCNs may have prohibited you from offering a discount to a customer who used one kind of payment — say, a debit card — rather than another, like a credit card.

Minimum Dollar Amount for Credit Card Purchases:

A PCN cannot stop you from setting a minimum dollar amount for accepting credit cards for payment as long as the minimum is the same for all credit card issuers and PCNs, and isn't more than $10.

What's new about that?

PCNs sometimes prohibited merchants from refusing to accept a credit card as payment if the customer's purchase didn't exceed a certain amount. For example, if you accepted credit cards at all, the PCNs or banks might have said you had to accept a credit card for even the most minimal purchases.

Network Availability and Routing for Debit Card Transactions:

PCNs and card issuers can no longer dictate the network you use for processing debit card transactions among the networks available on a debit card. You (or your acquirer) may choose to route debit card payments in a way that reduces your costs.

For example, you could arrange with your acquirer to have payments routed over the network available for that card that has the lowest interchange fee.  By April 2012, you must be given a choice of processing debit card payments through at least two different networks for most electronic debit transactions.  Many issuers already offer a choice.

What's new about that?

Sometimes PCNs and card issuers have restricted the networks available to merchants for routing transactions.  For example, some PCNs and card issuers had arrangements in which a debit card could only be used on a single debit card network or a set of affiliated debit card networks.  In addition, in the past, PCNs and card issuers — not merchants or acquirers — generally specified the network that would be used to process a transaction when multiple networks were available on a card.

These rules give you more freedom and flexibility in the day-to-day operation of your business, and can help you to lower your businesses costs.  Talk to your acquirer or processor about how you can take advantage of lower debit card interchange fees.  Go over your invoice together to see how these and other fees are reflected in your monthly statement, and discuss what you can do to reduce them.  And shop around  you may find a better deal.

The FTC, one of the federal agencies enforcing the new rules, has published new materials explaining the rules and how they will affect your business.  New Rules on Electronic Payments Lower Costs for Retailers provides more details.

About the Author:

Cecelia Taylor

SBA Official

CeceliaT is a moderator for the SBA Community. We appreciate your participation and feedback on how we can continually improve the community to meet your small business needs.


Thanks for this information. I was still under the impression that my merchant agreement prohibited me from offering a cash discount. Glad that's not actually true anymore.

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