In Which States Is Cash Discount Prohibited?

For many small businesses, learning how to draw in customers and improve margins can make a big difference. That should include payment processing costs and it is worth noting that credit cards can average around 2.5% of costs in each sale.

With a marginal net profit, it can take a large amount of sales to cover that processing charge alone. This is one of the reasons why many business owners are looking towards cash discount programs to improve those margins and reduce expenses.

Finding out which states prohibit cash discounts is one of the first steps to finding out if it can be used in a business. In this guide, we will look at laws on cash discount by state, those rules and regulations that apply with cash discount, and the penalties that come with a non-compliant cash discount program..

Laws On Cash Discount By State

The offer of cash discounts to customers is legal in the United States. That counts for all 50 states and is essentially due to the Durbin Amendment. This ruling in law was introduced in the aftermath of the 2008 financial crisis and protects business owners who offer cash discounts.

The Durbin Amendment also placed limits for transactional fees when either a credit or debit card is used.  

The Rules And Regulations Of Cash Discount

There are certain rules and regulations that apply to cash discounts being used legally by businesses. These include making a clear notice that cash discount is applied in their business and to post those details at both the checkout counter and the business entrance.

The cash discount has to be clearly shown on receipts when given to customers who use it too. Finally, the offer of a cash discount has to be made verbally when the transaction is completed with wording like “By paying in cash you could save X amount as opposed to using your card, would you like to save that amount today?”. 

Thanks to the Durbin Amendment being a part of the Landmark Dodd-Frank Act, there is some legal backing behind cash discounts. The amendment explicitly states that businesses are allowed to offer a cash discount as an incentive.

This incentive is to encourage customers to pay for their goods using alternative methods away from credit and debit cards. 

The Penalties For A Non-Compliant Cash Discount Program

Businesses who do not follow the rules and regulations of the cash discount program can expect some repercussions. This non-compliance can include posting cash prices on their goods and then adding a fee at the checkout. If that cash discount program is offered then the surcharging rules for card networks would render it as non-compliant. 

Penalties for such a non-compliant cash discount program can include fines. These can begin at $1,000 for every occurrence of non-compliance rising up to $25,000 for each one if the violations are repeated. A business may even risk losing their merchant account which is serious food for thought.

The Difference Between Surcharging And Cash Discount

It is worth noting the difference between surcharging and cash discount by how they are seen by the customer. Surcharging relates to a fee being added to a transaction when it is completed by a credit card.

The customer pays above the price tag when they pay with a credit card to pay those processing costs. However, cash discount takes away from the price tag and is money off when applied to that total when the customer pays with cash. 

While cash discounts are allowed in every single state, surcharging is prohibited in both Connecticut and Massachusetts. There is often some confusion between surcharges and cash discounts and Visa have even tried to provide clarification with their own statement.

The statement also clarified that Visa does allow for cash discount but that merchants were not permitted to post a price for those paying by cash only to add a surcharge for those paying by card. 

Final Thoughts

Many businesses that accept paying by cash should look to apply cash discounts. Not only can this incentivize customers into coming into the business, it can help a business dealing with processing fees too.

By avoiding credit card processing fees, a business with a high transaction volume with low profits for every transaction can make a big saving. There are also further issues for a business when it comes to dealing with credit card payments which can be chargebacks which are largely ruled out with cash payments. 

The practice of cash discounts remains largely straightforward and fails to cause much of a fuss in the United States. It is legal in all states and there have only been a few instances where states have intervened in how cash discounts are applied.

You can count Wyoming as one state that has intervened. In this state, there is a limitation on cash discounts in that discounts over 5% are prohibited. Stay up to date with all things processing within our payments learning center. 

Frequently Asked Questions

In Which States Are Credit Card Surcharges Legal?

In contrast to cash discounts, credit card surcharges are legal in only 40 states. There are eight more states where the application of surcharges looks to violate a state statute but such violations are typically unenforceable due to court decisions.

Those eight states are Florida, California, Kansas, New York, Maine, Oklahoma, Utah, and Texas. Only the states of Massachusetts and Connecticut prohibit the application of a card surcharge. 

How Can A Business Legally Charge Customers Different Prices For Their Method Of Payment?

It is true that a business can legally charge their customers different prices than the ones advertised on their goods. That different charge can be made evident at the counter as a cash discount can be applied for those customers who want to pay with cash.

Surcharges can also be made at the counter for customers who decide to pay on their credit or debit card.