CASH DISCOUNT

The topic of cash discounts and surcharges can make your head spin, as they are subject to many specific laws and rules. So, what is a cash discount and is it the same thing as a surcharge?

A cash discount is a reduced price paid by customers who use cash or check rather than a credit or debit card. A surcharge is an extra charge that applies to customers who pay with a credit card rather than other forms of payment, including debit cards, cash and check.

The payment networks such as Visa and MasterCard have specific rules for surcharges to comply with a settlement with the U.S. government in 2012. In addition, ten states prohibit surcharging.

Cash discounts are permitted according to U.S. law and Visa and MasterCard rules. One way of implementing a cash discount program is gaining popularity.

Businesses post signs indicating that a service fee such as 3.5% will be added to all posted prices, but the fee will be waived for those who pay with cash or check. In other words, the fee will apply to purchases made via credit card, debit card and prepaid card – anything except cash or check.

The service fee can offset the costs of processing card payments, yielding significant cost savings for merchants. While surcharge programs are limited by rule to credit cards, cash discount programs have the advantage of offsetting the costs of debit card payments as well. Of course, they also motivate more customers to pay with cash and check. I believe this explains the recent interest in cash discount programs.

IS IT LEGAL TO OFFER CASH DISCOUNTS?

One of the most frequent questions that have been asked about cash discounting programs is, “Is it legal?”

The answer is yes. Cash Discount programs are legal in all 50 states per The 2010 Dodd-Frank Law, in the Durbin Amendment, which states that businesses are permitted to offer a discount to customers as an incentive for paying with cash.

WHAT IS THE DURBIN AMENDMENT?

The Durbin Amendment is a provision in the final bill of the Dodd-Frank Wall Street Reform and Consumer Protection Act, aimed at debit card interchange fees and increasing competition in payment processing. The Durbin Amendment asked Congress to establish “reasonable and proportional” fees to the amount of interchange charged by issuing banks for debit transactions.

WHAT ABOUT MINIMUM TRANSACTION AMOUNTS, DISCOUNTS FOR CASH, AND SURCHARGES?

Merchants are now able to set a minimum transaction amount ($10.00) for credit cards and offer discounts for payments by cash, check, debit, etc. However, as a common mis-conception, merchants cannot apply a surcharge to transactions.

WHAT CARDS ARE IMPACTED?

The Durbin Amendment did not make a clear distinguishment between online and offline debit transactions. In otherwords, the federal regulation applies for both check card transactions as well as pin-based debit transaction acceptance.