Cash discount programs have become a popular pricing strategy for businesses looking to reduce credit card processing costs and encourage cash payments. In this blog, we will cover the legality of cash discount programs, the key elements to consider when implementing them, and the role of the Durbin Amendment.
Cash discount credit card processing, sometimes known as “cash discount programs,” is a type of payment processing that allows businesses to charge their customers more for using credit cards. Under this system, the merchant adds a fee to the customer’s total bill, which is waived if the customer pays with cash or check.
For example, let’s say a merchant charges $100 for a product or service. Customers who pay with cash or check will be charged $100. However, if the customer pays with a credit card, the merchant may add a 3% or 4% fee, bringing the total to $103 or $104, respectively. The customer can then choose to pay the $103 or $104 or pay with cash or check to avoid the fee.
This type of processing is legal and compliant with Visa and Mastercard regulations (as well as Massachusetts law) as long as the fee is clearly disclosed to the customer before the transaction is completed. The fee must also be applied equally to all credit card transactions and cannot exceed the actual transaction cost.
Cash discount benefit merchants as it allows them to offset the cost of credit card processing fees. It can also simplify the checkout process by eliminating the need for separate pricing for cash and credit card transactions.
However, it can also have drawbacks. Some customers may be turned off by the added fee, and it may create confusion or frustration during the checkout process. However, this confusion or frustration is usually alleviated by a clear disclosure of the fee.
One of the primary reasons businesses offer cash discounts is to reduce or eliminate the credit card fees associated with payment processing. Every time a customer pays with a credit card, merchants incur a fee. Businesses can save on these fees by incentivizing customers to pay in cash.
Cash payments are immediate, which can enhance a business’s cash flow. There’s no waiting period for funds to be transferred from credit card companies, which can sometimes take a few days.
Businesses don’t have to worry about the risks of credit, including chargebacks or non-payment due to expired or over-the-limit credit cards when clients pay in cash.
However, some customers still prefer to use credit cards for purchases because of the convenience, benefits, or safety they offer. Additionally, customers may become confused or dissatisfied if a company’s cash discounting policy isn’t clear.
Yes, cash discounting is legal in all 50 states, thanks to the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Durbin Amendment prohibits payment card networks from restricting merchants’ ability to offer cash and check payment discounts. However, laws and considerations depend on the jurisdiction when implementing cash discounts for a merchant services provider.
Key Elements of Legal Cash Discounts
