Cash Is Back

Richard Connor

MANY OF US ENJOY chasing discounts at grocery stores and other businesses. For instance, one of my favorite local wine shops gives discounts to club members. To sign up, all you have to do is provide your contact information.

Lately, the store has stopped requiring me to give my name when I make a purchase. Instead, employees automatically give me the discounted price. Maybe I’m buying too much wine and they recognize me.

In my area, discounts for paying cash are also becoming increasingly popular. In the past few weeks, I’ve been offered cash discounts at a local pizza shop, a mom-and-pop grocery store and a local restaurant.

It’s not always a cash discount, though. Instead, some businesses are imposing an additional fee for using a credit card. Last night, I noticed that a brand-new high-end burger joint had a 2.75% credit card convenience fee hiding in the fine print at the bottom of the menu.

Professionals are also getting in on the trend. My wife had some recent oral surgery. Her total charges were $1,815. The bill said that a 3.99% “convenience fee” would be applied to all credit and debit card charges. That means a $72.42 inconvenience charge if we’d used the debit card attached to our health savings account.

Earlier this year, I saved 3% by paying for a hot water heater installation with a check. The bill was around $2,400, so this amounted to a $72 savings. On the other hand, my credit card would have given me a 1.5% rebate, so the net savings was $36.

I can understand a merchant’s frustration with the cost of accepting credit card payments. Credit card processing fees typically range from 1.5% to 3.5% of each transaction. This can be a significant hit to a small business’s profit margin. The fees vary depending on the type of card, the bank that issued the card and the payment card network. Those high-reward credit cards, which many of us use, cost the merchant a higher fee. I was also surprised to learn that transactions that don’t involve a physical card involve higher fees, to protect against the enhanced fraud risk.

The Durbin Amendment, part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, made significant changes to the way merchants interact with payment card networks, or PCNs. Prior to the law’s enactment, PCNs—think VISA or Mastercard—had more power to restrict what a merchant could do regarding discounts. The 2010 law set limits on transaction fees, codified a merchant’s right to offer certain discounts and allowed merchants to set a minimum amount for card transactions.

The Federal Trade Commission’s website states the following: “A PCN cannot stop you from offering your customers a discount or another incentive for using a certain method of payment, as long as you offer it to all your customers and disclose the offer clearly and conspicuously. For example, you can offer your customers a discount or a coupon if they pay with cash or a debit card rather than a credit card.”

Cash discounts should be clearly displayed and explained. But you need to make sure you understand the retailer’s policy. My wife frequents a local nail salon. Vicky’s understanding was the salon gave a 3% discount for cash payments. Since she rarely carries cash, this meant me forking over cash each time she went. Recently, I asked her to check the salon’s policy. It turns out the salon “encourages” patrons to pay cash to save the business from incurring credit card fees. The salon doesn’t offer a discount, even though that was implied by its signs. After Vicky asked about the policy, the signs disappeared.

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