John Mayleben Blog

As a result of the nation’s economic turmoil, Congress has been working to put new safeguards in place to prevent future financial failures. While we might argue over whether these efforts will be successful, lawmakers have enacted at least two significant pieces of legislation that impact all merchants who accept credit or debit cards.

The first is legislation that addresses overdraft protection and how a consumer elects to participate in his or her bank’s program. The second new measure involves everyday transactions using credit or debit cards.

In the first situation, a number of banks ran “opt-out” programs that automatically enrolled a consumer in overdraft protection unless he or she chose not to participate. Automatic enrollment is now prohibited, and a consumer must “opt-in” instead.

So what, you say? The unintended consequence of this change is that fewer consumers are signing up for the coverage, with the result that consumers who use their debit cards may see more “declines” at your cash register, even though they have money in their bank account.

Customers who don’t understand the reason for these declines may take out their surprise and disappointment on you or your employees.

For example, if a consumer rents a car while on vacation, the car rental company will charge the card the rental rate plus authorize the card for a deposit in case the car isn’t returned or is damaged. This authorization is held against the customer’s account balance, even though it’s likely the card will never be charged for that amount. If the consumer then comes to your business and attempts to use his or her debit card, it could well be declined. In the past, with overdraft protection automatically in place, the bank had a safety net and would approve the transaction.

Unfortunately, there is not much you as a merchant can do in these situations, other than attempt to educate your customers, especially if you are in a situation where you are using a card transaction for a security deposit.

The second big — and most far-reaching — legal change is the “Durbin” amendment on credit/debit transactions. There are a number of pieces to this legislation still working their way through the regulatory process in Washington, but three of the changes have an immediate impact on merchants.

First, any merchant who accepts credit is now allowed to establish a store policy setting a minimum purchase for a transaction. This minimum cannot exceed $10 and needs to be clearly posted and communicated with customers prior to ringing up their transactions. This minimum can only apply to “credit” cards and does not apply to PIN debit or signature debit cards. If you establish this policy, you will need to make sure your staff are trained in how to identify a credit card so that you are in compliance with these regulations.

The second piece of the Durbin amendment that you can implement immediately is that you as a merchant can steer a debit transaction to a lower-cost processing solution. While you have no real control over a customer who insists on using a debit card as a signature debit (and therefore running the transaction on the Visa or MasterCard network), if you are set up for PIN debit you can encourage the customer to use his/her PIN number — which may be processed at a lower cost to your business.

The third immediate change allows you as a retailer to provide a discount to a customer electing to use a lower cost processing solution. You have always had the ability to offer a cash discount, but now you can offer a discount based on the type of card used. The only requirement is that you treat all similar cards equally.

For example, you might establish a 3-percent discount for cash, a 2-percent discount for PIN Debit transactions, and a 1-percent discount for signature debit transactions.

As the payments landscape continues to change and other parts of the Durbin amendment are put in place, we’ll make sure to update you on the new requirements.

John Mayleben is Michigan Retailers Association senior vice president, technology and product development, and a national expert on electronic payment processing.