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amounts from the balance, pending resolution of the dispute, when
calculating the minimum monthly payment due to petitioner.
A convenience user is a cardholder who uses the card to
purchase goods and services, but pays off the entire balance each
month, thereby avoiding any finance charges (interest). During
1980 and 1981, approximately 35 percent of petitioner's
cardholders were convenience users. During the taxable years
1980 and 1981, the issuing banks charged those cardholders who
did not pay off their entire balance each month interest at the
annual rate of 18 percent on their outstanding (revolving)
balances. This was the maximum rate allowed under Florida law.
Each merchant would submit its Visa sales receipts (sales
drafts) either to the issuing subsidiary bank or to another bank
with which the merchant had a Visa merchant account relationship
(merchant bank); the merchant received payment from the bank in
the amount of the sales drafts less the applicable merchant
discount.3 The merchant discount was equal to a set percentage
of the total charges. Petitioner determined the merchant's
discount percentage based on the merchant's projected annual
sales and the estimated costs of the merchant's participation in
the Visa program. If the merchant bank was not the cardholder's
issuing bank, the merchant bank would sell the sales draft to the
3 The sales receipts or sales drafts were treated like
deposits of cash into the merchant's bank account, less of course
the merchant discount.
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Last modified: May 25, 2011