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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.
It is a very frustrating situation. We went out to dinner to a local tavern and thankfully I noticed they had added the fee for credit cards. They removed it once we told them we were paying cash. However there are a couple of venues that explicitly refuse to accept cash. The local pro sports stadium has machines that change cash to debit cards as well as a nearby amusement park. Both started this policy because of the pandemic but have never switched back.
Talk about a lot of nerve: My doctor’s office now charges an extra 3% to use a credit or debit card. But when I tried to pay with cash, they said they didn’t have the ability to make any change.
You can’t have it both ways people!!!
When I was a small retail business owner 40 years ago (never again: too much work, too little pay) we gave a 3% discount for cash/checks and about half our customers paid that way. Today, the turnover rate of cash in my wallet is practically zero. I just don’t use the stuff.
Interesting. A local BBQ joint charged me extra for using a Visa credit card, after I had tipped them 15% for a cafeteria style line to pick up food. I may not go back.
I have started to pay cash for purchases like coffee shops where all they do is get you a coffee and then flip that charge card screen that has a minimum tip on it of 15% or even 20%. Now I pay cash and give a dollar tip in the jar or whatever is appropriate. Next will they be asking for tips at Walmart?
Yes, I’ve always thought that cash is almost as good as real money!
All my recent bathroom remodel charges (we’ve done two of them) have been paid with checks to plumbers, electricians, and my GC. And, when the Lowe’s team drops off my bathrrom supplies or the quartz counter guys finish the install, I give them some cash as a thanks for their hard work. They love it! You make a person’s day with cash. Will I see them again? Not likely, but you get to spread a little joy.
Some merchants see the transaction cost of a card as something different than any other administrative costs they incur, like bank fees. These merchants feel compelled to pass that charge to the customer, so you pay more with a credit card. The Truth In Lending Act of 1070 prohibits charging consumers one price for a cash purchase and another price for credit purchases. However, Truth In Lending applies to the lender, not the merchant.
Where I live (Seattle) cash is not accepted at many places, it’s very common to see debit/credit only signs. I seldom carry cash around anymore because I don’t get to use it much in my daily life. Living here I’ve become accustomed to using my phone (Apple Pay) for most purchases relieving me of needing to carry a wallet with physical cards or cash.
Meanwhile, other places such as airplanes, resort hotels and sports venues let you know that they’re completely cashless, so bring your credit card if you want a beer at the game or a drink by the pool. It’s hard to keep up!
I take care of the Square POS and other electronics for a very popular seasonal ice cream and burger place in a semi-rural area in the New York Finger Lakes region. They much prefer that customers use cards; handling cash is a major hassle. Also, the average card transaction is about 40% higher than the average cash transaction.
I was surprised to find that about 78% of the card transactions are debit. Square charges the same fees for all card transactions, regardless of type. We could probably find lower card transaction fees but Square provides free basic POS software on iPads that we would need to pay for with other providers. There aren’t any Square fees for cash.
Rick, thanks for this article on a confusing issue. I came across this explanation from Visa, which expands a bit on the FTC statement you quoted: Cash Discounts and Credit Card Processing Fees – What Not to Do (cardfellow.com)
So….a merchant can give a discount for cash but can’t impose a surcharge for using a card. To me it seems like a distinction without a difference, but apparently not to Visa.
Good article Rick.
Merchants are always looking for ways to save money on credit card processing fees be them cash discounts or surcharge related. From my reading only a small percentage of purchases (less than 20%) are still made with cash and many smaller merchants have thrown up their hands dealing with the legal complexities of relevant federal and state laws and the contracts with the numerous credit card processors and now just build their expected credit card processing fee into their pricing.
Now the maximum allowable credit card processing processing fees have gotten so high, about 4%, that the largest merchants have their own branded credit card to keep the bulk of those net fees lower to them.
The consumer bears the cost of these fees, of course. Oh for the days of fifty years ago when the sign at the gas station flashed the different price for cash and credit purchases.
I have read that the US total credit card debt has recently passed one trillion dollars. We need to quit digging that hole deeper. Those who do not pay their credit card bill in full each month subsidize those who do and indirectly all credit card users cost everyone more money on purchases for the excessive built in fees. I wonder how Jack Bogle would solve the CC fee problem?
My local gas station here in Seattle offer a significantly lower price per gallon at the pump for debit cards vs.credit. Many places won’t accept cash at all, only cards, they just build the fees into the cost of doing business.
Gas stations around here still flash cash/cc prices (Idaho/Wash). Usually, much cheaper with cash.
I wonder if that is caused by the different state laws between my state (Tennessee) and yours.
Tried googling it and many but not all states require the stations have clear signs with the price difference. Didn’t find our state law and I need to run.
William, thanks for reading and commenting and providing your perspective. I still occasionally see those gas station signs with separate prices.
Rick, good article. I prefer cash when dealing with businesses that are mom and pop shops. I have to say it, it allows both of us to benifit in the transaction if you get my drift.The new digital dollar being implemented will squash those benifits for both parties. Which essentially eliminates any black market transactions. I think the digital dollar will incourage more bartering transactions. Necessity is the motherhood of invention.
Mark, thanks for reading and commenting. I haven’t seen any evidence of bartering yet, but I’ll keep my eye open. I’m not sure I have any things or skills worth trading!
My wife and I like to visit local farmers markets. I attended several in the past few weeks, and it’s really interesting how some small merchants have fully adopted e-payments, and others are all cash. It’s also surprising what some small producers charge for Jersey tomatoes and corn!
Color me Luddite on a digital dollar.
Thanks Rick for the cash awareness article. If there’s a will, there’s a way to circumvent extra charges, human nature will figure it out.
Olin, thanks for reading and commenting. You are correct – people are very creative!
Whenever a contractor (HVAC, electrician, plumber, etc.) is doing a job at our house I will always ask if there is a discount for paying cash. It can sometimes be as much as 10% or more.
Are they doing funny business with their taxes or something? Not for me to know or care about.
Nate, thanks for reading and commenting. It’s worth asking – in my hot water heater case they took a check.
I had a similar experience when I had my garage doors fixed. I asked if credit card was okay. He neglected to tell me that there was a 3% surcharge for doing so. So debit cards, checks and venmo-type accounts will gain share. On the other hand in Fort Worth the most successful Tex-Mex restaurant has never accepted credit cards-only cash and checks- so was just ahead of the curve!
James, thanks for reading and commenting. There are a number of popular local restaurants here that are still cash only. The most popular pizza place in our town was cash only for decades. They never wrote any orders down, or provided a bill. The young servers added up the cost in their heads and told you the amount you owed. It worked for 50 years, until the newer owner ran afoul of the IRS for regularly neglecting to declare income. He spent several years in prison. The place now has electronic ordering, takes cards, and expanded their menu. It’s as busy as ever, and does a big online pizza delivery business.
This is new in the US (and doesn’t seem to have reached my area yet), but is common in other countries.
Kathy, thanks for reading and commenting.
Richard, Nick is right. Businesses that deal in cash are the largest group of tax cheats according to the IRS. Clearly there is a big temptation.
If a business says I can save you the sales tax if you pay cash, they are likely not reporting the transaction. if we accept the deal, I guess we could say we are aiding and abetting.
I just read that Visa is sending out auditors to crack down on merchants who charge a fee for card transactions which apparently is prevented by their agreement. I was in a business recently that charged a fee to use a debt card. That appears to be illegal.
I may be a bit cynical, but while the credit card transaction fee takes a slice of the pie, the use of credit cards also leads to selling more pies I should think.
A smart merchant would bury the fee in the price and then advertise “No extra fees for credit card use,” Are most people going to notice a forty cents higher price on a $10 transaction?
Dick, thanks for reading and commenting. You bring up an interesting point – how much responsibility does the consumer have in making sure that the businesses they use follow the law. I worked for large public companies that mainly contracted with the federal government. We had very tight controls, transparency, annual compliance and ethics training, and a strong culture of integrity. And yet there was always a few folks who tried to get around the rules, or mis-charged their time, or just cheated. Human nature is a fascinating thing.
Thanks for the presentation of the law, Rick. In my small town, some of my regular small business stops have been charging extra for credit card purchases for at least twenty years. Some were cash only until recently, and my barber is still. My habit is to ask for a cash discount after a price is quoted. I chuckled the day one merchant quickly replied, “That price includes the discount.”
Edmund, thanks for reading and commenting. I’m sure these practices have been around for a long time. Maybe it’s old age, but it just felt like I was seeing more and more of it.
I think you’re right, I just live in a little bit of a time eddy where cash is still king and credit cards are an annoyance to some merchants. Good article.
My nail salon and hair professional accept Zelle, Venmo and CashApp as payment methods. Solves the fee and cash carrying issue!
But possibly less safe. I recently looked into using Zelle, and opted for PayPal instead. Haven’t checked the other two, but here’s a piece on Zelle.
The only thing I know of Zelle is that Clark Howard regularly goes off on them, calling them a “cancer” and a “plague”, which is enough to make me steer clear. I really don’t want criminals emptying my bank account.
Jamie, thanks for reading and commenting. I am slowly getting more adept at using those types of payments services.
Unfortunately there is a dark side to encouraging cash payments and that is tax evasion. For me after the rebate I get it’s usually not significant overcharge to use a credit card plus who carries cash with them or checks? Finally, I avoid places that impose such charges and ask those that I can’t avoid to waive the fee.
Tax evasion is a big issue, but estimates can vary greatly. For the most part, we have a “voluntary” tax system and I’ve seen people that cheat a little to those that cheat a lot. I didn’t prepare or sign the return, but there was a plumber client way back in my public accounting days that regularly showed very little income on his return but lived a pretty big life. Based upon his lifestyle versus his income tax return, the IRS would say he has no visible means of support. He could have been receiving annual gifts from parents/grandparents or other rich relatives for all I know, but you get the picture of the potential problem. 1099 reporting (including 1099-K reporting for credit card transactions) is supposed to give the IRS matching capabilities, but they are overwhelmed. People know this and some will push the boundaries as far as they can and have no problem taking cash under the table.
Nick, I never thought of asking them to waive the fee. How much success have you had with that?
Nick, I have actively started carrying cash again. It feels very retro—you should try it.
Also, several well known studies have shown paying in cash makes people spend less. Apparently there is something psychological about handing over physical cash that makes us spend less.
NIck, thanks for reading and commenting. Tax evasion is an interesting issue. It might be worth it’s own article.
I recently made a large purchase and wanted to use my new Fidelity credit card that would give me 2% into my retirement account. There was a 3% fee to use a credit card so it would have cost me about $170 overall to use the credit card.
Call me naive but I have been completely unware of this tax evasion practice. Many small businesses I deal with do not accept credit cards. I do hope someone writes an article on this.