Credit? Debit? The Difference May Cost You

State won’t intervene in dispute between Visa and marketersVisa to marketers:
If you don’t like our rules, don’t offer discount-for-cash

State regulators in California won’t come to the rescue of marketers caught between obeying state standards on discount-for-cash pricing and demands by Visa that they drop the word ‘credit’ from price signs.

“As far as we’re concerned, putting the word ‘credit’ on a price sign is appropriate, but as far as Visa telling marketers they can’t do it, that’s a civil matter between Visa and the marketers,” says Dennis Johannes, the state’s Weights and Measures director. “We have no authority to regulate Visa.”

The state’s posture leaves marketers in a Catch 22 situation. If they use the word ‘credit,’ Visa has said it may fine them and strip them of their right to take Visa cards. But if they adopt some of Visa’s suggestions, such as leaving the ‘credit’ sign blank, they will be violating state standards, says Johannes.

Johannes believes that Visa is being “a little heavy-handed” on the issue. “They probably don’t want dual pricing because it discourages the use of their credit card,” he says. His only suggestion for marketers is that they seek a legislative change that will specifically require the use of the word ‘credit’ on signage.

Johannes is not alone in his suspicions of Visa’s motives.

“Visa’s goal is to get everyone to pay the higher, credit card price for fuel and they will twist and torture their rules if necessary to force consumers to do so,” says Mallory Duncan, chairman of the Merchants Payments Coalition, a business group dedicated to fighting for lower card interchange rates.

Visa is not particularly sympathetic to the plight of marketers – the credit card giant says it is the marketers’ fault for offering discount-for-cash in the first place.

“If the merchant wants to steer the consumer to discount for cash, then they have to do it within the context of Visa’s rules,” said Visa spokeswoman Rhonda Bentz. “It’s great if they have a contract with the state, but they don’t. They have a contract with Visa and if they don’t want to abide by that contract, they shouldn’t have signed it,” she said.

“These merchants clearly want the consumer to pay with cash. Okay, then, they should just accept cash and not credit cards. But they want access to our 1 billion cardholders, and they want the reduced risk that comes with taking Visa, and they want the guaranteed payments. They just don’t want to pay for it.”

Visa threatened to fine Mom and Pop operator Mike Gharib’s credit card processor $5,000 because he was using the word ‘credit’ on his price sign, as exclusively reported (OE 04/16). The processor, Petroleum Card Services, planned to pass the fine through to Gharib. Visa withdrew the threat after Oil Express raised questions on the issue. The company says Gharib is now “compliant” with its rules. Gharib has removed the word ‘credit’ and that part of his price sign is now blank, Oil Express sources say.

Visa’s position is that the higher price next to the word ‘credit’ on signs implies that the customer is paying a surcharge for credit, which is against Visa rules. It wants marketers to substitute other terms, such as ‘regular’ or ‘standard,’ or just leave that part of the sign blank. Additionally, Visa says the word ‘credit’ does not take into account debit cards, which must be treated the same as cash sales under state regulations.

Therefore, the signs are misleading to debit customers, too, says Bentz. Asked why Visa should start objecting to the word ‘credit’ after its use on station signs for 26 years, Bentz says Visa received complaints from consumers who thought they were being surcharged for credit. Johannes says consumers know debit transactions are the same as cash, and that the difference between the two forms of payment – cash and credit – is well-understood. Using the term ‘standard’ or ‘regular’ would confuse customers, and leaving the sign blank would violate state rules. Visa’s other suggestions – ‘non-cash’ and ‘base price’ – would have to be studied, he says.

“’Non-cash’ is probably something we would not pursue as being illegal but there are a lot of other enforcement people in this state, such as the district attorney, county officials, and state attorney general’s office, and we don’t speak for them.”

Visa has also objected to the way some marketers handle debit card sales at the pump and there is a suspicion among some marketer groups that the company would like to force consumers to go into the station to sign for a debit card transaction. Visa receives higher fees for debit signature sales than it does for Personal Identification Number transactions, sources say.

Visa has told Auburn, Calif.-based marketer Nella Oil that its debit card sales at the pump violate Visa rules because those customers are not getting the cash or discount price.

When customers use a Visa debit card at the pump, they are required to enter a PIN. If they do not do so, the card processor treats the sale as a credit card transaction and the customer will pay the higher, credit price for fuel. Likewise, the marketer will pay the higher fees associated with credit card transactions, although the money will ultimately be debited from the customer’s bank account. Nella has decals on its pumps clearly warning customers that they must key in their PIN to get the debit price, and the state has approved that decal, a Nella exec says. Visa says that’s not enough to ensure that customers receive their cash discounts. Nella had hoped to get its bank to segregate PIN debit purchases and block them at the pump, but has been told that is not possible. “So, we’re back to square one,” says Nella.

Actually, not quite – under the landmark Wal-Mart-Visa lawsuit settlement, Visa and MasterCard were barred from bundling their debit and credit cards together, so forcing merchants to accept debit cards whether they wanted to or not. Nella can write to its card processor or bank and tell them that it no longer wishes to accept Visa debit cards, says an industry lawyer. This will cause the bank to shut off Nella’s access to the Visa debit network.

As a result, when a customer swipes his debit card the sale will be routed automatically to the regional debit network whose logo appears on the back of the Visa card – the Star network would be one such example. The Star system will not process the customer’s sale until he inputs his PIN, so avoiding charging him the credit card price for fuel.

“What’s so frustrating is that Visa and MasterCard have a duopoly in the market place and they’re trying to put retailers in an untenable position in order to increase their leverage and revenues,” says Duncan, with the Merchants Payments Coalition.

Oil Express, April 23, 2007

Visa says cash discount signs violate its rules, marketers face large fines Oil Express, April 16, 2007

Mike Gharib is facing a $5,000 fine for violating Visa’s rules, although he says he has never seen a copy of them because Visa does not make them available to its merchants.

Gharib offers cash-or-credit pricing at his San Francisco station and has earned Visa’s wrath by using the term “credit” on his street sign. Visa wants him to use the words “standard,” “regular,” or “normal” to label his credit card price or forfeit his right to accept Visa cards. Gharib says he has no option but to comply.

“Weights & Measures have approved all my signs, but Visa says if we don’t change the wording we will be fined $5,000 and could lose our merchant agreement, which would mean we couldn’t take Visa any more,” he told Oil Express last week.

Gharib says his cash-credit signage is identical to Valero and Unocal station signs and he believes that Visa is singling him out because his store is in a prominent location in San Francisco, Visa’s home base.

“I think Visa is being very selective in its enforcement. I don’t see how they can say that we’re breaking the rules when they won’t even give us a copy of them. But I’m out of my league here, I can’t fight Visa any more,” says the small independent marketer who has occupied the same station for 24 years.

Visa says it is not picking on Gharib, but only trying to protect its cardholders. A day after being contacted by Oil Express about Gharib’s case, Visa said it had changed its mind about the fine.

“His bank has informed us that he is now compliant, and we have closed the issue. He will now not be fined $5,000,” Visa spokeswoman Rhonda Bentz told Oil Express late Thursday.

“We’ve been getting complaints from people using debit cards that they’re being charged a credit price,” says Bentz. “If merchants want to accept Visa, they have to follow our rules. Wherever there are instances of violation of the surcharge rule, we will investigate and notify merchants.”

In fact, Visa has warning letters lined up for several California banks representing gasoline marketers, says Bentz. A bank that serves at least one large refiner is also on the list, sources say.

Large chain marketer Nella Oil has already received a letter from its bank, officials with the Auburn, Calif.- based company confirm. “We have been threatened with fines, based on the contract. But, of course, we don’t have the contract,” says one Nella exec.

While Visa does not like Nella’s signage, state officials made clear in a conference call with the bank, Visa and Nella last week that Nella’s signage complies with the state’s Business & Professions code.

The California code gives marketers two options for displaying cash and credit prices. They can display the higher price on their pole signs and then note that there is cents/gal discount for cash in letters that are one-third the size of the price numeral. Or, they can post both cash and credit prices in equal size type for each grade. Nella chose that option, listing cash prices and credit card prices per grade.

“Visa gave us the option of using ‘normal,’ ‘standard’ or ‘regular’ price instead of the word ‘credit,’” says the Nella exec. “That seemed to be patently ludicrous to us because it would really confuse customers.”

The state also has said that none of those words would satisfy the state code, which says signs must explain “the condition or any limitation under which that grade is sold.”

Visa now acknowledges that California law will not allow marketers to use “normal,” “standard,” “regular” or “premium” to describe prices. The company was just trying to help marketers by coming up with words they might use to replace “credit,” says Bentz.

“They could always use ‘non-cash’ and ‘cash price’ or ‘base price and cash price,’” she said. “I don’t know of any state law that says you can’t use the term ‘non-cash.’ We’re willing to work with merchants on terms.”

Offering discounts to cash purchasers has been a standard practice in the gasoline industry since 1981, when Texaco introduced a 3% fee for credit card sales. Marketers reacted by offering a 3-4cts/gal discount if customers paid with cash. Every major followed suit except Shell, which bucked the trend by offering same price, cash or credit.

Why Visa has decided to punish retailers for following a 26-year-old marketing practice puzzles many. “It seems that we’ve slipped down the rabbit hole again, with people being expected to follow rules that are not available to them,” says Jay McKeeman, VP of the California Independent Oil Marketers Assn.

However, Visa shed some light on its thinking during the Nella conference call when it raised objections to the way Nella handles debit card sales at the pump.

If the customer fails to enter a Personal identification Number (PIN) at a CRIND unit, the sale is treated as a credit card transaction and the customer is charged the higher credit card price, although the purchase will be debited from the customer’s checking account, says Bentz.

“Visa rules allow merchants to offer a cash discount but they cannot add a surcharge or a higher price than the price advertised,” she says. “In California, they are using the term ‘credit’ and not making a distinction for a debit card. Debit card holders are not being offered the cash discount, and we know that because we’re getting complaints from customers.”

Nella’s dispensers give step-by-step instructions to customers, advising that to get the cash discount price the customer must push the debit card button on the CRIND unit and enter a PIN. Weights & Measures officials have said that they regard the instructions as clear enough, says Nella, but Visa is still objecting.

Now Nella is looking to tweak its software so that customers will not be able to use their debit cards at all unless they enter a PIN. “Hopefully we can get a prompt that tells the customer to go back and look at the instructions so that they realize that they have to enter a PIN,” says a company official.

Marketers say they have no control over whether a bank’s processing network treats a sale as a debit or credit transaction. Nella says it talked to its bank about ways to segregate the two types of sale but was told that the bank could not easily do so.

Bentz insists that marketers can control the way the cards are processed. “It is the merchant that is making the distinction between debit and credit,” she says. “They are just trying to back-door our rules.”

However, she says Nella may be receiving a blended card rate from its financial institution that rolls credit and PIN-less debit card fees into one rate. “That may be a reason for the complication,” she says.

As for marketer complaints that they have never seen the rules they are accused of breaking, Bentz says they are readily available on Visa’s Web site. Marketers can read a simplified, short-form version of rules that govern their sales or they can sign a confidentiality agreement and then download the 1,200-page operating regulations that govern Visa’s processors and card issuers.

“A lot of merchants have said that they can’t get the rules but all they have to do is submit a request. There is an entire set of our operating regulations on our Web site. They can go on line and apply for it.” Only 400 or so merchants across the U.S. have requested copies of the rules, and only half of those have actually downloaded them, she notes.

Mike Gharib has looked at the short-form rules on Visa’s site and says that nowhere does it say that marketers cannot use the word ‘credit’ on their signage.

Bentz concedes the point. “There is nothing in the rules that says the word ‘credit’ is not allowed, that is our interpretation of the rule,” she says.

Mallory Duncan, chairman of the Merchants Payment Coalition, a business group trying to get lower card fees for marketers, says Visa is trying to force marketers to comply with “largely secret rules” that are “the size of the New York City phone book.”

“It appears that [Visa and MasterCard] arbitrarily interpret the rules to maximize their income and discourage competition,” Duncan told Oil Express. “Therefore, it would not be surprising if Visa were to adopt a strained interpretation that would prevent a gasoline retailer who is trying to provide its customers a break from labeling Visa’s high credit card price for what it is.”

Bentz disagrees. “These businesses, especially the big ones that fund the MPC, should respect contracts between businesses,” she said.

--Oil Express, 4/16/07