Is Discount legal?
The short answer is yes, cash discount is legal when implemented correctly.
Cash discounts in their true form are allowed in all 50 states, however surcharging credit card transactions are prohibited in the states of Connecticut and Massachusetts whereas in the states New York and Maine surcharging requires the merchant to display dual pricing. Additionally, card brand regulations prohibit surcharges on debit cards even if the cards are run as credit.
What's the difference?
There’s a lot of confusion about the differences between cash discounts and surcharges, and that confusion has led to some merchants labeling surcharge programs as cash discount. So let’s look at the differences between the two and show you how we keep you on the right side of state laws and card brand regulations.
Discount vs. Surcharge
A cash discount is when you display credit card prices and offer a discount on that price for customers who pay with cash.
A surcharge is when you display cash prices and charge an additional fee on top of that price for customers who pay with a card.
In the first situation, a customer pays less than the listed price. In the second case, they pay more than the listed price.
If you charge more at the register than the listed price, it is a surcharge, calling it a “service fee” or a “non-cash adjustment,” doesn't change the fact that it's still a surcharge.
While it may sound like a minor difference, it’s actually very important in terms of legality and compliance with state laws and card brand rules. Getting it wrong means risking chargebacks, fines or having your merchant account shut down. So, keep in mind the quick rule of thumb – if the customer pays less than the listed price, it’s a discount. If they pay more than the listed price, it’s a surcharge.
For true cash discounting, merchants are not permitted to list a price for cash, and then charge a higher price for cards, a discount must be a reduction in price – not an increase in price. Some may argue that the “regular price” is the cash price however if the regular price is the cash price, then no discount on the regular price is being offered.
The term “regular price” means the listed or posted price. So, if a business lists a price of $10.00 they will need to charge cash-paying customers less than $10 at the register in order to be offering a cash discount otherwise, it’s a surcharge.
The term “surcharge” means any means of increasing the regular listed price to a cardholder which is not imposed upon customers paying by cash, check, or similar means.”
Bottom Line
The bottom-line is that many purported “cash discount” programs are non-compliant because they list the cash price on the shelf and then add a fee at the point of sale. This brings them under the States and card brand rules for surcharging. A true “cash discount” program must increase the price listed and then reduce it at the register when customers choose cash. True cash discount does not add any fees or surcharges at the register.
In some jurisdictions, it may be required to post both the cash price and the credit price in dollars and cents with equal prominence to handle the “regular price” situation, this is called dual pricing and can offer transparency to your customers so there are no “surprises” at the register. The listed price clearly indicates that there are different prices for cash and for credit. As of this writing the states of Maine and New York require that businesses (dual price) and post cash / credit prices in dollars and cents to be compliant with surcharging rules.
If you want to take advantage of our cash discount program to lower your processing fees, we will help you correctly implement it and if you’d prefer surcharging, we can implement it for as long as you are in the growing list of states that permit it.