Cash Discount Legal
When asked about cash discounts, “A discount for cash is different from a surcharge. The rule states the posted price must be for cards, however, merchants can provide a lower price for cash acceptance. Discounts for cash are allowed by Visa. However, merchants are not permitted to post a price for cash, and then charge a higher price for cards.” [Emphasis added.]
In this statement, Visa clearly explains that a business offering a cash discount is allowed, but that the posted price must be for cards. Businesses can offer a lower price from that posted (card) price as a cash discount.
The Durbin Amendment
Visa’s statement squares with definitions found in the Durbin Amendment as published on the Cornell Law School website, which states that payment card networks will not restrict business’ ability to offer a discount for cash and check payments. It defines “discount,” stating: “The term “discount”— (A)means a reduction made from the price that customers are informed is the regular price; and (B)does not include any means of increasing the price that customers are informed is the regular price.”
This section clarifies that a discount must be a reduction in price – not an increase in price. Some processors may argue that the “regular price” is the cash price. However, if the regular price is the cash price, then no discount on the regular price is being offered.
In some jurisdictions, it may be possible (or required) to post both the cash price and the credit price in dollars and cents with equal prominence. This screenshot from the CardX website illustrates dual price scenarios.
Dual pricing can offer transparency to your customers so there are no “surprises” at the register. The shelf (or invoice or menu) clearly indicates that there are different prices for cash and for credit, and lays out what those prices are.
If you’re not sure about the requirements for your state, be sure to consult your lawyer or your state’s Attorney General.
Why does it matter?
There are two reasons that the execution of a cash discount program matters: state law where surcharges are prohibited, and surcharge prohibition on debit cards.
States Where Surcharging is Banned
Firstly, while cash discounts in their true form are allowed in all 50 states, a handful of states have laws against surcharge programs. If you surcharge in a state with a law against it, you’re breaking the laws of that state. As of 2018, surcharging is prohibited by law in Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, and Oklahoma.
Surcharge laws have come under scrutiny in recent years, and several states have gone to court over the practice. State laws where surcharges are prohibited may change in the future. We’ll update this map as those laws change, but it’s a good idea to check with your lawyer or state Attorney General for the latest information before surcharging.
Surcharge Prohibitions on Debit Cards
Secondly, surcharges are never permitted on debit cards. This is true even if cards are “run as credit” and even in states where credit surcharges are legal. Visa’s FAQ on surcharging clearly spells out that surcharges cannot be applied to debit.
If you’re adding a surcharge to a debit transaction, even if you’re calling it a “non-cash adjustment” you’re risking your merchant account.
Razi explains: “You cannot apply a fee above the listed price to a debit card, no matter what the fee is called. When you list a price and then add a fee at the point of sale, it is definitionally a surcharge under the law, and must comply with the card brand rules (and state laws, where applicable). For this reason, the fee (whether labelled a “surcharge”, “non-cash adjustment”, “service fee”, or anything else) can never be applied to a debit card, and “cash discount” programs that add a fee to debit are exposing their merchants to fines and shutdowns by the card brands.”
The consequences for surcharging debit or for implementing a cash discount program that’s really a surcharge program without complying with surcharge rules can be serious. Processors can shut down accounts when they’re informed by the card brands of non-compliance. Furthermore, both Visa and Mastercard have forms on their websites that allow cardholders to easily report being charged a fee for card use.
For violations of the card brand rules, Razi states that businesses can be fined $1,000 per occurrence, increasing to $5,000, $10,000, and $25,000 per occurrence for repeated violations. Ultimately, the merchant may be added to the Terminated Merchant File (“TMF,” or MATCH list) which makes it difficult to secure a merchant account from any processor in the future.
For the sake of your merchant account and your wallet, be sure you’re on the right side of laws and card brand regulations before surcharging or signing up for a cash discount program.
Spotting a Surcharge Program
The tricky thing is that many processors offering “cash discount” programs are actually offering surcharge programs but labeling them as “cash discount” programs. How can you tell if a processor is offering a true cash discount program, or if it’s a surcharge program in disguise? Look for the following:
Reference to a “non-cash adjustment” or “service fee.”
If a processor states that customers paying with cards will receive a non-cash adjustment or service fee when they check out, it’s a surcharge program.
Explaining you’ll post “cash prices.”
Processors offering surcharge programs may explain that your business will list “cash prices” on shelves and will add a fee for customers that don’t pay with cash. If you’re not posting credit card prices and offering a discount for cash, it’s a surcharge program.
In the screenshot below, a company introducing a “cash discount” program incorrectly states that charging a service fee is not a surcharge program.