What is a cash discount program?

The Cash Discount Program is a way for merchants to eliminate processing fees without increasing prices. Thanks to the DODD-FRANK ACT that prohibits payment card networks from inhibiting the ability of anyone to provide a discount for paying cash. Unlike other programs, the cash discount program is legal in all 50 states. As stated in the Durbin Amendment, businesses are allowed to offer a discount to customers as an incentive to pay by alternative methods, including cash or check. There has always been a stipulation in the Visa and Mastercard regulations that allow for a discount when paying with cash. How it works: A 3.9% customer service charge is applied to all store sales. If a customer pays with cash, the fee is eliminated. Example: If you sell a product for $10.00, our proprietary software adds .39c for a total of $10.39. You get to keep your full $10.00, and the .39c goes to pay the credit card company. If your customer pays cash, the .39c customer service fee is eliminated. Either way, you don’t get stuck paying credit card fees.

What do I need to start offering the cash discount program?

We make implementing the Free Fee Cash Discount Program simple. You post signage stating that all store sales carry a 3.9% service charge. However, if you pay with cash, the customer service charge is waived. Displayed prices are cash prices. PAY BY CASH AND SAVE! When you swipe or insert a credit card,our proprietary technology does all the work for you.

Sample Signage

What if my customers get upset with the fee and go elsewhere?

Don’t sell your customers short. Many consumers are starting to realize just how expensive it has become for your business to to accept credit cards. If explained that the small service fee is to cover the rising cost of credit card acceptance that merchants pay when credit cards are used, your customers will understand. And for the small business that only takes cash because of the exorbitant cost associated with credit card processing, you now have an entirely new revenue source. You concentrate on growing your business, we’ll pay your credit card bill. We are so confident in our Cash Discount Program that if at any time you are not 100% satisfied, we will switch you back to traditional credit card processing for free, no questions asked.

I heard that it’s illegal to charge a fee if someone uses a credit card?

Until recently, Visa and MasterCard regulations made it clear merchants could not charge more to a consumer who used a credit card over other methods of payment. As a result of a 2013 lawsuit against the card networks, merchants are now allowed to impose a surcharge in all but 10 states and Puerto Rico. We’ll address the surcharge in the next question below.

However, there has always been a stipulation in the Visa and Mastercard regs that allow for a discount when paying with cash.

While this may seem like an issue of semantics, It’s simply adhering to the wording of the Visa and Mastercard regulations that allow the cash discount program to be implemented.

Here’s the verbiage specific to both Visa and Mastercard Rules and Regulations:

From Mastercard Rules 15 November 2016

5.11.2 Charges to Cardholders
A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction.

A Merchant may provide a discount to its customers for cash payments.

A Merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used, or as the Corporation has expressly permitted in writing.

Is this the same thing as a Surcharge? I hear that’s only allowed in certain states.

No, the Cash Discount program, while seemingly similar, is actually very different, particularly in the eyes of Visa and MasterCard. As mentioned in the preceding Q&A, the 2013 ruling against the card networks resulted in merchants now being able to implement a surcharge. The surcharge is allowed in all but 10 states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, plus the U.S. territory of Puerto Rico).

Those states claim that a surcharge is not fair to consumers. We find it somewhat laughable that it’s not fair for consumers to pay for the cost merchants incur to provide goods and services while it’s been perfectly OK for merchants to pay for the rewards programs associated with the credit cards that consumers use.

You do realize that right? Every time you see an ad on TV, in print, or hear on the radio that talks up the benefits and rewards associated with a particular credit card, those benefits come in the form of higher Interchange rates that merchants pay to be able to accept those cards. The increase in fees is not borne by the card issuing banks or credit card processors – it’s paid for by you the merchant!

The Surcharge carries with it several stipulations:

  • Only credit cards may be surcharged – no debit cards
  • Signage must be posted for at least 30 days prior to implementing a surcharge alerting your clientele
  • There is a 4% maximum that can be imposed
  • Surcharging is only allowed in states where the program has not been excluded

With the Cash Discount program, these limitations are not in place, as you are not implementing an additional fee for accepting a credit card, you are providing a discount for those who pay with cash. This is a clear distinction, and one that Visa, Mastercard, and the courts have agreed upon:

In a Cash Discount program, all prices in your store carry a 3.9% Service Charge. The posted prices are your cash price. Those who pay with cash do not have to pay this fee. This is not a situation where those who pay with a credit card pay more.

As Mitchell Katz, spokesman for the Federal Trade Commission, said in May of 2011: The Dodd-Frank law prohibits a payment card network such as Visa “from inhibiting the ability of anyone to provide a discount for payment by cash, checks, debit cards, or credit cards,” said Katz. “Neither surcharging, nor a cash discount is illegal.”