What businesses need to know about cash discounting

The Durbin Amendment

The Durbin Amendment, included as part of the 2010 Dodd-Frank law, permits businesses to transfer all or a portion of their processing fees onto their customers. Thanks to the amendment, companies can now legally offer a discount to those who pay with cash or check instead of credit or debit card.  There are only six states that currently prohibit surcharging- Colorado, Connecticut, Kansas, Maine, Massachusetts and Oklahoma.

The Durbin Amendment states that payment card networks are not allowed to restrict a businesses’ ability to offer discounts for cash and check payments. It defines “discount” as a reduction made from the price that customers are informed is the regular price; and does not include any means of increasing the price that customers are informed is the regular price.

What is a Cash Discount?

Businesses that use a cash discount program give customers who pay with cash or check instead of credit or debit card a percent off their total purchase.  By using a cash discount program, businesses can save on credit card fees. Credit card companies charge businesses a fee for each transaction, which accrues over time. Having the option to pay with cash at a lower price encourages customers to do so, thereby saving the business money in merchant fees.

What is a Surcharge?

A surcharge is an additional fee that is added to the price of a product or service. Surcharges are often used to offset the cost of providing a service or to cover the cost of an increase in the price of goods. For example, many airlines add a fuel surcharge to their ticket prices to offset the cost of fuel. Similarly, some hotels add a surcharge for guests who use the hotel’s amenities, such as the swimming pool or fitness centre. In some cases, businesses may also add a surcharge for customers who pay with a credit card, to offset the fees they must pay to credit card companies.

What’s the difference between a Cash Discount and Surcharge?

Cash discounts are when you offer a reduced price for paying with cash. This is usually done to encourage people to use cash instead of credit or debit cards, which can cost the business more in fees.  Surcharges, on the other hand, are when you charge an extra fee for paying with a credit or debit card. This is done to offset the fees that businesses have to pay when someone uses one of these forms of payment.

In the first scenario, a customer pays less than the listed price. In contrast, in the second case they pay more than what is advertised. If you charge customers more at checkout than what was originally advertised, it’s considered a surcharge—no matter what your payment processor calls it.  While it may sound like a minor difference, it’s actually very important in terms of legality and compliance with card brand rules. Getting it wrong may result in heavy penalties or risking the loss of your merchant account.

What is a Non-Cash Adjustment?

A non-cash adjustment is a bookkeeping entry that does not involve the exchange of cash. Non-cash adjustments are often made for depreciation, amortization, and other items that represent a reduction in the value of an asset over time. While non-cash adjustments do not have a direct impact on a company’s cash flow, they can still affect the financial statements and tax liability.

6 Tips on staying fully compliant

As a business owner, it is crucial to ensure that you are always operating within the law. This is especially important when it comes to utilizing cash discounting, as there are a number of compliance issues that you need to be aware of. Here are some tips on how to stay fully compliant:

1. Make sure that you disclose the cash discount terms to your customers upfront. This includes letting them know that they will be responsible for paying any fees associated with the discount, as well as any minimum purchase requirements. A good start is to place signage by the entrance of your business and at the point of sale.
2. Ensure all Non-Cash Adjustment and Surcharges are clearly listed on your receipts.
3. Always use a reputable and licensed cash discount provider. This will help to ensure that you are providing your customers with a fair and legal service.
4. Notify the major card brands (Mastercard and Visa) at least 30 days in advance by completing an online form.
5. Businesses should not exceed surcharge maximums.
6. Keep accurate records of all cash discount transactions. This will be crucial if you ever need to defend yourself against any potential compliance issues.

By following these tips, you can help to ensure that you are always operating within the law when utilizing cash discounting. This will protect your business from any potential compliance problems, and will help to build customer trust.

Global Legal Can Help

At Global Legal Law Firm, our lawyers are familiar with the rapidly changing nature of electronic payments processing, and the ever changing regulations involved, with decades of expertise in ISOs, processors, commercial collections, credit card brands, and other forms of electronic payment processing litigation. Let us guide you through this new and volatile environment, rather than attempting to navigate it on your own.