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socrateaser, Attorney
Category: Business Law
Satisfied Customers: 38910
Experience:  Retired (mostly)
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I am a processor of credit cards and debit cards. The industry

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I am a processor of credit cards and debit cards. The industry is very competitive; the competitive edge is based on who can offer the lowest rate. The rate consists of four fees, two of which are non-discretionary, the other two discretionary.

In addition to offering a competitive rate, my company would like to offer a cash back rebate to the merchant on the monthly residuals we receive from his account.

This would be an additional discount to the merchant and discounts, I understand, are not taxable. Could I offer a monthly cash rebate to the merchant for the privilege of having his business?

There is nothing in either NC or federal law that would prohibit you from offering a discount to your merchants.

However, some states (e.g., California) prohibit merchants from imposing a surcharge on the use of a credit card instead of cash as part of a transaction. Cal. Civil Code 1748.1. But, your proposed transaction is between the processor and the merchant, and it actually operates to the benefit of consumers, because it lowers the overall cost of credit transactions. Therefore, I can see no public policy violation, given that the public interest benefits from your proposal.

The only obstacle that may stand in your way is something in your agreement with the major credit card networks (VISA, MasterCard, AMEX, Discover, etc.), which prevents you from discounting your service fees without the network's consent. You will have to review your agreements to determine if anything in the contract language would bar your contemplated plan. Other than that, it would seem to be a pretty good idea.

Hope this helps.
Customer: replied 4 years ago.

Thank you for this information. It is very helpful, but one last question:

Do I need a legal agreement between my company and the merchant client or can I just advise them of the cash rebate?

A written agreement is always advised, because it eliminates uncertainty. However, there is no absolute requirement that you have a written agreement. Just be prepared for arguments, when a merchant thinks he/she is entitled to a benefit that you have not granted.

Hope this helps.
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