Peter Freeman, the co-owner and “head jerk” a Pharmacy and Soda Fountain shop, said credit card swipe fees are his biggest business expense after rent and payroll. He estimates he spends $15,000 a year on the 2 to 4 percent swipe fees that credit card companies typically charge to cover the cost of processing payments. Many business owners agree with him!
But now, due to a recent settlement between merchants and credit card giants Visa and MasterCard, businesses in Texas and 9 other states are allowed to offer a discount for customers paying with cash, avoiding the Credit Card Transaction costs. 40 states allow surcharges for card charges as well as cash discounts.
“Retailers offer cash discounts because they want to reward customers for taking [transaction] costs out of the system,” said Jeff Lenard, a spokesman for the National Association of Convenience Stores in Alexandria.
In Australia it took several years for similar action to catch on, but many companies, and then entire industries, began dipping their toes into surcharge territory. It evolved gradually — one airline would try it and see if they could pull it off, and then you’d see all the other airlines start to do it, too. Then hotels and so on. Now a large portion of the world’s merchants give cash discounts or charge card payment surcharges, saving them thousands in overhead.
Mitchell Katz, spokesman for the Federal Trade Commission, said: The Dodd-Frank law prohibits a payment card network such as Visa “from inhibiting the ability of anyone to provide a discount for payment by cash, checks, debit cards, or credit cards,”
However, it must be disclosed, either with a written policy or conveyed verbally to customers before the transaction.
In Texas, the State Attorney General stated: ‘businesses can discount the regular retail price of an item for consumers who pay cash. ‘
The Texas Finance Code also allows for Cash Discounts, and card payments to be assessed an increase to the ‘regular’ price of the product or service.
Section 339.001 of the Texas Finance Code states:
- Cash discount Section 339.001 prohibits surcharges for paying by credit card, but it does not prohibit discounts for paying by cash, check, debit card, or other methods.
Definition of Discount: A surcharge is an increase from the regular price of a good or service, but a discount is a decrease from the regular price.
The federal Truth in Lending Act allows sellers to have two prices (one for cash and one for credit), as long as the credit card prices of the good or service is also the regular price.
*** IMPORTANT TO NOTE: The processing system must have special software so that the ‘regular price’ must show in the point of sale system or the credit card machine receipt to the customer. Per regulations it cannot be added to the price total by hand and then entered into the POS. The POS receipt must clearly show the original ‘cash discount’ price, and the fee that brings the ‘cost’ to the ‘regular price’. ***
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