It takes money to take plastic

Jody Harville was getting fed up with small credit-card purchases consuming her profit margin.

Like a lot of small-business owners, Harville pays transaction fees to banks and credit-card processors, which make small transactions a money-losing proposition. So she set a dollar fee for credit card purchases of up to $10 at her downtown Spokane restaurant, the Brooklyn Deli.

“Frankly, I’d rather give them the product than pay the credit-card fee,” she said.

With recent reforms passed for credit-card users, merchants say they’re next in line for some relief. They say that they’ve been hit with steep and unpredictable changes in the fees they pay to accept the cards for payments. As more and more people use credit and debit cards for everything – even for small purchases like drinks and snacks – business owners say their already thin margins suffer.

Setting minimum purchases or charging fees for small credit-card purchases is unpopular with customers, and it violates the cardholder agreements with credit-card issuers, though it is not against the law. But the limits are becoming more common – 17 percent of consumers in a recent survey said they had encountered them – and many observers say that enforcement of those rules is rare.

Sam Sidhu, owner of three 7-Eleven franchises in Spokane, said he has not set a minimum for credit-card purchases, “but some retailers are forced to.”

“If you have a customer buying four dollars worth of stuff and a retailer is losing money on that, it’s kind of a tough situation,” Sidhu said.

7-Eleven stores recently ran a nationwide campaign urging Congress to reform its rules for credit-card issuers and to put limits on the so-called interchange fees – which is the largest portion of the fees merchants pay and which generates up to $50 billion a year for banks that issue cards.

The chain argues that the fees are “hidden” and that businesses cannot negotiate for better fees, and says the typical American business spends more on credit-card fees than it earns in profit. Sidhu said the chain’s stores nationwide have seen its fees for credit-card transactions triple in the past few years.

Banks and credit card companies argue the fees are needed to cover processing costs, and that if merchants’ fees are forced down, the added cost would be passed on to the consumer.

With recent credit-card reforms passed for consumers, some business owners are hoping Congress and the new administration will take a look at their fees.

“The fees are just too much right now,” said Dharamjit Khehra, manager of two mini-marts in Coeur d’Alene.

‘I’ve lost my profit’

Every time someone uses plastic, some 2 percent to 3 percent goes to a bank or payment processor, depending on individual agreements. A part of those fees is based on a percentage of the purchase amount, but the interchange fee – which is around 1.8 percent of each card purchase – does not vary by amount, according to Bankrate.com, a consumer-oriented financial services Web site.

But it can be hard to generalize about the fees, because they vary according to a wide range of factors.

“It varies card by card,” Sidhu said. “Debit cards tend to have a lower fee percentage than credit cards. It varies amount to amount, depending on which (card) agreement the store is working under.”

The high fees are prompting some business owners to go out and seek a better deal. Ray Bowser, owner of the 3rd Ave. Grocery Mart, recently switched from a big bank to PI Bank of Seattle to save on card transactions.

He estimates the switch will save him between 2 and 20 cents per transaction.

“If you have a person coming in and they’re buying a pack of gum, which is only 75 cents, by the time we’re finished with the transaction, I’ve lost my profit,” said Bowser, who noted that card transactions make up a relatively small part of his business. “I might as well just give it to you.”

Deena Moe-Caruso went through a similar change a few years back. Moe-Caruso, owner of Finders Keepers, a store specializing in jewelry, antiques and collectibles, was getting ready to open a second store, and her credit-card transaction fees were becoming “stupid,” she said. They went up seemingly on a whim, and new fees were being added all the time.

She said she found a better deal at a local bank – Washington Trust – and that her fees have been stable since then, at just under 2 percent. She said her stores do a lot of card transactions, but that there’s been a shift from credit to debit cards, with more people spending within their means.

“Our main forms of payment now are Visa, Mastercard and debit,” she said. “I’ve noticed that cash has picked up.”

‘Cost of doing business’

Harville isn’t alone in setting minimums for card transactions. A survey by Auriemma Consulting Group found that about 17 percent of consumers had been told they needed to spend a minimum amount before using a card.

While it’s legal to establish such a minimum, both Visa and MasterCard prohibit such limits in their cardholder agreements – though they are so common that enforcement is rare, observers say. Consumer-oriented Web sites encourage people to resist the minimums, at the counter and by writing to credit-card companies.

Moe-Caruso said she has not considered setting a minimum.

“As a business owner, it’s all in the cost of doing business,” she said.

MerchantCouncil.org, a Web site that provides advice to merchants, advises business owners to steer clear of setting minimums or charging fees by either raising their prices or offering a discount for cash purchases.

Sidhu said 7-Eleven takes the charges into account when setting prices, and so the rising fees affect the consumer. That’s why the company went the route of gathering petitions to change the law.

“Every time we have a price increase, we consider our processing fees, too,” she said.

For Harville, the costs plus the hassle of small purchases on a card have her questioning the use of them at all.

“We’ve thought about taking it completely away and not even having credit-card transactions here,” she said.

But there’s a pretty big obstacle to that route for any business owner these days.

“Nobody has cash anymore,” she said.