Financial Reform: Four Credit Card Changes You'll Want to Understand

June 29, 2010 — -- When it comes to credit card policy, will your favorite big box store go the way of your corner mom and pop shop? Will your college stop letting you use plastic to pay your tuition? Will your debit card suddenly get you more discounts than your credit card?

If the new financial reform bill becomes law, all of the above could happen, credit card industry experts say. Here's a rundown of some of the surprising changes that credit card users could see:

1. Minimum credit card purchase requirements banned no more: Many a consumer has been left frazzled at the register when confronted by store policies prohibiting credit card purchases for less than a certain amount.

What may come as a surprise to some is that large credit card companies like MasterCard and Visa actually forbid the merchants that do business with them from instituting such minimums. The card companies, said Ed Mierzwinski, the consumer program director at National Association of State Public Interest Research Groups, have been successful in enforcing the prohibition against big box retailers, but smaller operations have been able to fly under the radar.

Under the financial reform bill, retailers large and small will be able to institute minimum purchase requirements of no more than $10 without fear of running afoul of their credit card agreements.

Gerri Detweiler, a credit advisor at Credit.com, said the change could lead to minimum purchase requirements at more retailers, meaning more frustration for plastic-prone consumers. But Detweiler said she did see a bright side -- more consistency. Stores that do decide to set credit card charge minimums won't be able to exceed $10.

"You can make sure you have a $10 bill in your wallet at all times," she said.

2. More colleges could limit credit card tuition payments: Just as the bill allows merchants to set minimums on how much you charge at their stores, it allows colleges to set maximums for credit card charges.

So Long, Big Rewards for College, Government Credit Card Charges

The bill would supersede merchant agreements between colleges and credit card companies that forbid such maximum charge limits and could lead more colleges to announce that they will no longer accept tuition payments charged to credit cards even as they continue to accept credit cards for other goods and services.

This flexibility benefits colleges, Mierzwinksi said, because when students charge large-ticket items like tuition to their credit cards, colleges wind up paying large sums in so-called interchange fees that card companies share with banks.

"Visa and MasterCard extract an average of 2 cents on every plastic dollar and that means if you buy something for $1,000, they get 2 cents on each of those thousand dollars," he explained. "If your tuition is $10,000, then [your college is] going to get $200 less."

For consumers, fewer opportunities to charge college tuition could make it harder to rack up credit card rewards points for such benefits as frequent flier miles.

For some colleges, meanwhile, the provision may not make much of a difference -- larger schools have different departments that strike separate agreements with credit card companies, meaning that a college's tuition office might already forbid credit card use while that same college's bookstore can continue accepting credit cards.

That's currently the case at George Mason University, which recently announced it would no longer accept tuition payments charged to Visa credit cards.

Students can still "go to a bookstore right now and buy a notebook for your class tonight with a Visa card," said university spokesman Daniel Walsch.

3. Government agencies could limit credit card charges: Just as colleges bristle at paying large fees on large credit card purchases, so does the federal government.

According to the Government Accountability Office, the federal government paid at least $433 million in fees related to credit card and debit card purchases totalling more than $27 billion.

"The government gets hammered by these cards," Mierzwinski said.

As with colleges, the bill will allow federal agencies to set their own maximums on how much people can charge to credit cards when making payments to the government.

While credit card industry officials haven't commented on the proposed federal maximums, a Visa company spokesman did, in response to a reporter's e-mail, release a fact sheet noting that the federal government already pays lower interchange fees than merchants do.

4. More discounts for debit card purchases? The new bill would set in stone that merchants can offer discounts to consumers who use certain payment methods -- cash or checks, for instance, instead of credit cards (which come with interchange fees for merchants.)

Credit card companies say the provision doesn't mean much.

"Federal law already allows merchants to offer discounts for cash, and the existing contracts by Visa, MasterCard and American Express goes even further, allowing discounts for checks, debit, or other forms of payment," said Trish Wexler, a spokeswoman for the Electronic Payments Coalition, whose members include Visa, MasterCard and American Express.

But another part of the bill could encourage merchants to offer more in the way of debit card purchase incentives, in particular. The legislation would allow the Federal Reserve to regulate the intercharge fees banks charge for debit card swipes, likely making them lower -- and that, experts said, may prompt merchants to offer discounts to consumers for using debit cards over higher-fee credit cards.

"That would be a major change," said Credit.com's Detweiler. "It might force consumers to really make some tougher consideration about which piece of plastic to pull out at the cash register."