Jun 3, 2008

Something I wish I'd known three months ago: Some credit card issuers do not allow merchants to impose a maximum

As you might recall, back in March, Marc and I bought a new car. I had intended to make a down payment of over $10,000 on my credit card, but the sales manager told me that the maximum I could pay with a credit card was $5,000. When I mentioned this on CFO, I received a comment from MITBeta stating that Visa and Mastercard do not allow merchants to impose minimum or maximum limits on purchases.

I had known that merchants can't impose a minimum purchase amount, and that the mom and pop stores that have signs that say "Credit card purchase requires $10 minimum" were in violation of their merchant agreement. But it never occurred to me that the opposite might also be true.

I was reminded of this issue by this Bankrate.com article. The author quotes a Visa rep confirming that their "rules require merchants to always honor valid Visa cards regardless of purchase amount -- large or small." (Mastercard has the same rules, but American Express allows merchants to limit transactions.)

If I had known this back in March, I definitely would have insisted on being allowed to make the full down payment that I wanted to make. And, according to the Bankrate article, the dealership would most likely have given in when I informed them that I would pursue the issue with Visa. The article's author points out that the dealer might want to re-negotiate a deal under such circumstances, but it wouldn't have worked in our case. Marc and I had made clear when negotiating our old car's trade-in value that we were prepared to walk away.

We don't plan to buy a new car for at least another five years, but I plan on paying cash for that car. In fact, I've already started saving money for it each month. And in five years, I'll be paying for that new car with a credit card!


Unknown said...

we had the same thing happen when we bought our minivan in October 2006. We were told $5000, because the percentage they pay to the company is prohibitive for their profits. We didn't push the issue but I wish we had. We get cashback on our purchases and like to put everything we can on credit card.

Anonymous said...

One of the reasons you probably wanted to use your credit card is that you most likely wanted to receive the cash back rewards. Even though it may be true that a merchant can not limit your purchase with the card it could be that your card would still not offer you a full cash back on the $10,000 purchase.

Credit card cash back rewards programs will often limit the amount of purchases per month that can receive cash back rewards. They have minimums for cash back rewards as well as maximums. The maximums can be a maximum per month or a yearly maximum of say $6000.

It is important to read the "terms and conditions" section of the credit card offers and take note these kinds of details.