Frequently Ask Questions

Simply put, a cash discount program makes it possible for businesses to benefit from the cheapest credit card processing fees available. A merchant can offset some or all of the present merchant service fees by passing on the processing costs to the customer. Basically, the merchant would increase the price of goods or, as in most cases, apply a service fee to all products sold.  Then, the merchant gives a discount to those individuals who pay with cash.

By doing this, the merchant is effectively passing on the processing costs for the transaction to the customer when they pay with a card, and then incentivizing customer to pay with cash by offering an immediate discount. This makes sense for the merchant because their processing fees are dramatically reduced or eliminated.  Finally, this should be clearly explained with signage and on the receipt that is printed and given to the customer.

In 2010, Congress passed sweeping financial regulations under the Dodd-Frank Act. One of the later additions to this bill was the Durbin Amendment. The Durbin Amendment established the cash discount program and allowed businesses to incentivize and encourage their customers to pay with cash.

Interestingly enough, there have been studies done and surveys responded to that reveal nearly 80% of those questioned wouldn’t let a small fee affect their purchasing decision.  That’s not saying you’ll lose customers, it’s simply saying that only a fraction of your customer base would even give notice to it.

What’s also important to note is that the due to so many digital transactions and service fees for luxuries that have flooded the economy in the last 20 years, most people have become conditioned to service fees as a simple fact of life and have openly accepted this as ‘normal’.

In 2011, Mitchell Katz (spokesman for the Federal Trade Commission) quoted from the amendment saying that “The Dodd-Frank law prohibits a payment card network like Visa “from inhibiting the ability of any individual to give a discount for payment by cash, checks, debit cards, or credit cards.”  He went on to clarify that “Neither surcharging, nor a cash discount is unlawful.”

The credit card processing fee that a company pays to a credit card company can vary from business to business. Typically, however, the fee is can range north of 4%.  So, imagine an electronics company that wants to sell a television for $500. They determine that the $500 price point allows them to cover their expenses and make a small profit.

However, this price point does not account for the customer’s method of payment. A customer comes into the store to purchase the television and pay with a credit card. The business must now pay a percent fee to the credit card company, $20. Now, the store only receives $480 for the sale, which cuts into the profits significantly and, as we’ve seen in some cases, perhaps even causes them to take a loss.

To compensate, the company will mark up the price of the television to $520, which covers the credit card processing fee. This cost is passed on to the consumer directly. But what if a customer were to pay cash? Why would they need to pay the credit card processing fee? This is where the cash discount program comes into play.

The cash discount program allows the business to advertise that they offer a discount for those paying cash. Thus, the cost of the television for those using a credit or debit card would be $520, but the cost of the tv for those paying cash would be $500.

One of the most significant aspects of the program is the fact that businesses must display signs that clearly indicate their participation in the program. These signs must not only be in the entryways of the company but at all point-of-sale locations as well.

Additionally, businesses must include all monetary amounts associated with the program on the receipts they provide their customers. If there is a credit card processing fee, companies must display this on the receipt. If a customer receives a discount, companies must show this as well.

Legally, you can do it yourself, that was afforded to all merchants via the Durbin Amendment.  However, like with many professional services, it’s best to leave some things to those who have done the research and have verified their program agains compliance requirements.  For instance, if the cash discount is processed incorrectly during the transaction, it could result in a surcharge event which is potentially in breach of your processing agreement usually is explicitly illegal by Visa / Mastercard unless certain steps have been taken.

Any reputable processor that offers a Cash Discount Program will have everything needed to safely offer that benefit to the customer. You can typically expect a processor to offer the following:

• Compliant hardware
• Compliant receipts
• Compliant signage
• Software to automate the cash discount
• Other benefits, depending on the processor

In order for the processor you are working with to stay within the guidelines of their agreement, and to honor the agreement with the merchant, they will work with you on an arrangement that should make sense to you.  If your current processor is not offering something that you feel is going to benefit you well enough, you can consider our top cash discount providers here.

No, the Cash Discount program is very different in multiple respects.  The Durbin Amendment from 2013 (added to the Dodd-Frank Act of 2010) decided against the card brands effectively clarifying that merchants have the capacity to apply an additional charge. The additional charge (surcharge) is permitted in every state except 10.

If you live in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Texas, or the U.S. region of Puerto Rico, you cannot participate in a surcharge program.

The main reason those 10 states do not permit a surcharge is they feel that it is unfair to pass the cost of the transaction on to the customer.  Most will argue that the merchant is having to bear all of the burden of a transaction and that prohibiting a service fee or surcharge is unfair to the merchant.  The surcharge is also intended to cover the perks of using a credit card – like the rewards program.  See, each swipe means money is taken from that transaction to pay the operating costs of the card brand, like Visa, Mastercard, etc. It also pays for the costs of your processor whom you have a contract with.  As well as it pays for the rewards programs offered by the card brands.  A surcharge is designed to pass on the cost of using a credit card to the customer.

A compliant surcharge requires the following:

• Must be domiciled in a state that permits surcharging.
• Credit cards only!  This does not apply to other types of cards, like debit.
• Merchants cannot charge more than 4% as a surcharge fee.  This surcharge is against the labeled price.
• Specific signage.  A merchant is required to display compliant signage for a minimum of 30 days before applying a surcharge to any transaction.

Distantly related, yet very different, is the Cash Discount program.  The main distinctions is that the merchant applies a pricing increase, via sticker adjustments or with appropriate signage notifying of a general service charge to all items when a card is used (credit or debit), but then gives an immediate discount to those individuals who pay with cash. This is a clear distinction, and most importantly, one which Visa, Mastercard, etc. and the courts have all agreed upon.