05 August 2007
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Double-Secret Discount

I was wrong.  I'm a guy, so when I ask for directions (which I never do, unless it involves making tea) or admit I was "wrong," which I seldom do because, of course, I almost never am, you know it's a special undertaking.

See above:  I was wrong

Warning:  Research Ahead

I have been railing against the credit card monopolies in this blog.  Not because I dislike credit cards, but because of the restrictive credit card "rules" that turn them from an optional convenience to a gratuitous tax on the economy.  In "The Monopolists In Your Wallet" I explained how the credit cards became a sales tax.  In "Nobody Beats the Wiz" I whined about how at least one credit card didn't provide the buyer protection I had a right to expect, although that was a bit of a digression.  And most recently, in "Harpage," I elucidated yet another credit card issue, along with giving Mrs. Nagle her due.

A couple of weeks ago I had the opportunity to present my rant in person to someone who had worked in the credit card industry and who thought she knew what she was talking about.  I explained why I thought the credit card companies were evil monopolists, which in brief, is that they did not allow merchants who accept them to charge a different price when the customer pays cash.  She told me that although it's true they do not allow a merchant to surcharge a credit card transaction, they did allow the merchant to offer a discount for cash.  Since my entire argument has been that they don't allow that, and I had that reinforced by reading the rules when we first started accepting credit cards, I was skeptical.  Since we had a disagreement about a factual matter that could be resolved easily by unearthing the credit card contract, I resolved to do just that, i.e., research the facts.

I put our bookkeeper to the question:  Please, M'am, may I have a copy of the credit card contract?  She produced a multi-page document with surprisingly readable type from the cavern in which it resided.  I scanned it until I got to the part about surcharges and discounts, wherein it states that one can't require

any Cardholder to pay either any surcharge at the time of sale or any part of any Charge imposed by us on you (however, cash discounts are permissible, as are convenience fees, when in compliance with Card Organization Operating Procedures).

Interesting!  On one hand, adding a surcharge for a particular card isn't allowed.  As annoying as this seems, it isn't a monopolistic practice; the card is involved in the transaction and it isn't unreasonable to make rules when it's actually used.  On the other hand, the Bank of America booklet doesn't forbid discounts for paying in some other way.  But it doesn't allow them, either.  Rather, it refers one to the operating agreement of the card organization, e.g., MasterCard, VISA, American Express. 

And here's where it gets interesting!

Of course I asked for a copy of the "Card Organization Operating Procedures."  It was a bit of a challenge explaining just what I wanted since our bookkeeper had never seen anything other than the Bank of America booklet.  After a few tries, I decided that I could either track the agreements down myself, or petition our long-suffering Corporate Secretary to do so.  (The reason that our Corporate Secretary is "long-suffering' is, basically, me.  I apologize to her publicly at this time.  All in all it's better to apologize than to do research one's self, especially if it involves using the telephone.)  This is what she discovered:

As explained to you and me today by [redacted] the representative at Bank of America, Merchant Services, B/A does not have in printed form in their Bank of America, Merchant Service Agreement booklet, the "Card Organization Operating Procedures" mentioned in paragraph D, page 28, which is part of Section 7.11 Selected prohibited practices, beginning on page 27.

Paragraph D states that: Require, directly or indirectly, through an increase in price or otherwise, any Cardholder to pay either any surcharge at the time of sale or any part of any Charge imposed by us on you (however, cash discounts are permissible, as are convenience fees, when in compliance with Card Organization Operating Procedures).

[She] has, however, confirmed that the practice of giving discounts for payment by cash/check (and stating that in any form to the customer), is permissible. It is not in non-compliance with Card Organization Operating Procedures. She also explained that this "unwritten" permission is a loophole in their agreement. [emphasis supplied]

Unfortunately, this conversation with [her] is the only extent to which you can get "something in writing" to confirm that what you want to do is "permissible."

I'm kind of proud of myself on this one, and not just because I got the result I wanted without having to do the work myself.  Notwithstanding the newly-discovered legality of the credit card company procedures, I think it's neat that there's a double-secret "loophole" in their operations.  And I hereby thank my friend who initiated the quest and my associates who helped me conclude it.  I think it's time to review the pricing of some of our products, and perhaps raise their prices by a few per cent, with a concomitant discount for payment by check.

Open letter to merchants everywhere: 

If you take credit cards, may I suggest a general price increase?  Can't you use the money?  Just be sure to offer me a discount for cash!

NP:  "Summer of Love" - B-52's

Richard Factor

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