Think Again!

You may have heard California won the lawsuit on the state’s ban on credit card surcharging, but what does that mean?

A little history first…..

A prohibition on adding a surcharge to credit card purchases went into effect in California in 1985. The statute states that it is meant to “promote the effective operation of the free market and protect consumers from deceptive price increases for goods and services by prohibiting credit card surcharges and encouraging the availability of discounts by those retailers who wish to offer a lower price for goods and services.” The law basically meant that merchants were not allowed to add a surcharge to the sales that are completed with a credit card.

But in 2014 a few merchants in California sued the Attorney General stating that being able to add a surcharge and call it that (more on that later) helped customers to better understand that there are costs involved with a merchant talking that form of payment. The courts ultimately sided with the merchants and issued an injunction barring its enforcement.

So that’s awesome, right? You can now add a credit card use surcharge! You can now decide if adding a surcharge for accepting a payment by credit card is right for your business and help to offset those costs that you as a business incur by accepting them.


What many don’t realize is that the panel decided that this only applies to the 5 merchants involved in the court battle. This means that the ban is still in effect and still applies to, and can be enforced against, all of the millions of other merchants in California.

But, don’t fret, all is not lost! If you are one of the millions of small businesses in California that was not involved in the court proceedings, and most likely you were not, there is still an option. This option is really just a loophole in the law. The law banning surcharging is really all about semantics. You are not allowed to add a cost to the price of an item and call it a “surcharge” for using a credit card, but you are in fact allowed to offer a discount to those purchasing with cash. This little loophole allows you to pass on the costs involved with processing credit cards to only the consumers who are using a credit card and ultimately lowering your cost of accepting those cards.

How can you take advantage of this surcharge loophole?

You must enlist the help of a reputable credit card processor to legally and accurately implement a proper Cash Discount Program.

Now, don’t think you can just open up on Monday and start telling your customers they can have a discount if they pay cash! I say “proper” program because there are actually rules you must follow to do this legally and effectively.

You need a merchant service provider who can help you get everything set up correctly so that you can start your cash discount program. First, you must notify all the card types that you intend to implement a cash discount program. Then we will be able to help you decide on the correct amount of discount to offer. They also require you to display what is called a “customer pricing notice”. This notice serves to inform your customers that all transactions will be subject to a service fee. And that the price they see listed on the items in the store already reflects the cash discount. In this way, you are stating that the “true” price of each item is the price listed plus a service fee that applies to every transaction. The fact the fee is applied to all transactions to start with is an important part of the semantics of the program.

The discount you are giving to consumers who pay with cash then is reflected in the form of a discount equal to the service fee. The service fee can only be from 1% to a max of 4%,  your credit card terminal will need to be programmed so that the fee has its own line item on the receipt. Rather than raising all prices across the board to try to offset the fees, which would affect all of your customers, this strategy allows you to award your cash-paying customers with a discount while still offsetting the extra fees associated with accepting credit cards.

Why is this viewed as a discount for paying cash instead of a surcharge for credit cards? Semantics.

When a credit card surcharge is applied it is a cost in addition to the true price of the item, when you offer a cash discount, the price plus the service charge is technically the true price of the item. Every item….and the discount is given to cash buyers. A surcharge only applies to credit card transactions, merchants are not allowed or charge debit card users a surcharge. A cash discount however is only given to people using actual greenbacks, so any other form of payment, even debit cards, would not get the discount.

Implementing a program such as a Cash Discount Program is great for the merchant and the customer alike. It allows you to effectively lower or even eliminate your credit card processing fees, by adding more income to your bottom line it helps you to keep your prices down which in turn is great for your customers since they won’t be subject to rising prices.

The program is very flexible and can be tailored to your specific needs, you decide how much of a discount you want to apply (or how much of your fees you want to offset), as little as 1% or as much as 4%, and you can waive the service fee whenever needed. You can even cancel the program at any time. No long term contracts.

The program is a breeze to set up. We take care of everything!

Your terminal will come preprogrammed with the capabilities to list the service fee as an extra line item as required, as well as transmit the fee in the correct authorization field for your processor. We will also notify the card types that you will be implementing the Cash discount program so that you remain compliant with all laws and do not violate merchant account guidelines.

We will provide you with the proper signage to keep you compliant and inform customers how the “price listed and advertised reflect the cash discount”. In short, we cut through all the red tape for you to make this the easiest transition for both you and your customers.

At Bankcard Brokers we are committed to the success of our business partners whether it is through offering the most transparent and competitive rates or helping you to offset those rates. Our ETA-certified payment professionals are well versed in the laws and regulations of the payments industry and dedicated to upholding the highest level of integrity.

Call Bankcard Brokers today to find out how our Cash Discount Program can work for you!