What you probably don’t know about your credit card

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photo / Brett L. Creative Commons license graphic Painted credit card mural in San Francisco 

Last week, the Consumerist published an excellent list of ten things you might not know about your credit card – a veritable Bill of Rights for those who pack plastic. Excerpted below are four of the most important points addressed in their piece, plus some clarification and discussion from yours truly. (Bolded text is quoted from the Consumerist.)

Unsigned cards are not valid, and merchants can and will refuse them.

Think you’re protecting yourself by writing “Check ID” in the signature space on the back of the card? You’re clever, but you’re wrong: Credit cards must be signed.

The credit companies’ reasoning is: Thieves won’t take the time to practice someone’s signature, so a simple comparison of the card and the signed receipt should reveal the fraud. And if the thief grabbed your wallet or purse, he or she could easily produce identification with a matching name: yours. (Think about it: How many non-photo IDs are you carrying right now?)

An unsigned card, however, gives the merchant no comparison. According to the Consumerist, when a merchant is confronted with an unsigned card, they’re supposed to ask for a government-issued ID that includes a signature, ask you to sign your card, then compare the two.

Of course, most retail employees don’t bother checking signatures at all. This brings us to the next thing you probably don’t know about your credit card:

Merchants cannot require you to present ID – unless your card is unsigned.

That’s right. Businesses are in violation of their merchant agreement if they require a photo ID when processing a credit card transaction. Of course, they also reserve the right to refuse service to anyone for any reason, so it’s probably best you comply if you’re planning on taking those groceries home.

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photo / szlea Creative Commons license graphic A sign at Brothers Restaurant in Lincoln, Nebraska 

Merchants cannot require a minimum transaction amount.

While it’s annoying to see a $5 minimum at a local coffeeshop and feel obligated to buy something else to round out the total, my sympathies lie with the merchants in this case. Specifically prohibiting minimum amounts serves only to inflate the credit card companies’ shares of each transaction – and reduce the merchants’ profit margins.

Credit card companies take two slices of each purchase: a percentage of the total (usually 1–3%) and a flat fee for processing each transaction (probably 25–50 cents). Merchants require minimum purchases because of the flat fees, which cut deeply into their profits when the transactions are very small. Coffeeshops are hit especially hard: If most of their customers buy a $1 cup of coffee, the 25-cent fee assessed on that purchase reduces their income by 25%. (Most stores operate on a much smaller profit margin, so a potential 25% loss can run a business into the ground.)

Requiring a minimum transaction encourages the consumer to either buy more (annoying) or think ahead and buy everything at once (smart!) instead of returning to the register again and again. The more purchases you make, the more fees are assessed against the merchant. This means your favorite cafe is making less – and the credit card companies are making more.

Merchants cannot charge a surcharge for using a credit card. However, they can offer a “cash discount.”

Business sometimes require surcharges to offsets the transaction fees discussed above. Again, I feel bad for the merchants. I would much rather be charged 25 cents extra because I only want a $2 muffin. In the end, I’d be spending $2.25 instead of the minimum $5. Of course, merchants cannot technically require minimum purchases. So how can businesses avoid this trap? As the Consumerist points out, they can offer a “cash discount.”

It’s in quotes because it’s clever: Instead of charging more for credit card transactions, retailers can raise the price of everything and offer a discount for customers paying in cash. Recent Austin emigrant Spec’s is probably the best examples: You can save 5% off your total simply by using cash. This places the cost of credit transactions on the consumer while adhering to the credit card companies’ rules. If you think this is being sneaky, consider that merchants already have to raise their prices to cover the loss to credit cards. Spec’s is just being transparent about it.