TABLE OF CONTENTS
- 1 What is a Non Cash Adjustment?
- 2 Non Cash Adjustments, Cash Discount, and Surcharges
- 3 Why am I being charged a Non Cash Adjustment?
- 4 The History of Cash Discount vs Surcharging
- 5 Visa, Mastercard, Discover, and American Express Rules
- 6 Definitions and Regulations
- 7 Violations and Fines
- 8 The Bottom Line
What is a Non Cash Adjustment?
Non Cash Adjustments, Cash Discount, and Surcharges
At first glance, the distinction between a ‘Cash Discount’ and a ‘Surcharge’ may seem subtle and largely semantic.
Nevertheless, businesses must follow specific guidelines when implementing checkout fees to avoid significant penalties for violating card brand rules and potential legal action for breaching state surcharge laws.
Why am I being charged a, Non Cash Adjustment?
Over the past few years, Surcharging and Cash Discount have become hot topics in the merchant services industry for the past few years. Some businesses argue that adding additional fees for customers who pay with a credit or debit card is a constitutionally protected First Amendment activity, while others feel it is a nickel-and-dime tactic that frustrates customers.
This ongoing debate arises from the fact that accepting credit or debit cards costs businesses anywhere from 1% to 3% of the total sale. Businesses believe that cardholders should be aware that credit card companies charge these fees. Debate has arisen over whether to display the fee as a separate line item or include it in the product’s cost.
For a clearer picture, check out our detailed guide: How Payment Processing Works.
The History of Cash Discount vs Surcharging
In 1968, Congress passed The Truth in Lending Act (TILA), a federal law requiring lenders to disclose all fees and charges associated with a loan. In order to encourage credit card usage amongst consumers and eliminate the potential for businesses to charge higher fees than their costs, Congress added a Surcharge ban on credit card transactions.
In 2017, the United States Supreme Court ruled in Expressions Hair Design v. Schneiderman (No. 15-1391) that a New York statute restricting surcharges violated the First Amendment’s free speech protections. However, they left the question open on whether the actual conduct of a business applying surcharges violates any constitutionally protected rights. The Second Circuit reviewed the case and found that the statute aims to regulate economic activity, deeming it constitutional as it governs business conduct rather than speech.
Over time, various federal appellate courts have reached different conclusions regarding state surcharge laws, prompting discussions on the precise definitions of ‘Surcharge’ and ‘Cash Discount’. Meanwhile, businesses and regulators have continued to debate the specifics distinguishing a surcharge from a cash discount.
More recently, multiple court cases and rulings have led card brands to drop contractual obligations restricting businesses from imposing surcharges to offset credit card processing fees.
Visa, Mastercard, Discover, and American Express Rules
Even so, the specifics of Surcharging versus Cash Discounting are still a matter of debate. In practice, there is very little difference between the two and how the fees are expressed will determine which definition a business falls under.
To clarify these practices, card brands and some states have established specific rules businesses must follow for fees to qualify as a surcharge or a cash discount.
Consequently, businesses that fail to follow card brand rules for cash discounting are automatically considered to be surcharging and become subject to the surcharging rules of card brands and state laws.
Definitions and Regulations
- Surcharging Rules
- States where Surcharging is Illegal Connecticut Maine Massachusetts
- No Surcharging allowed on Debit Card Transactions
- Surcharging may not exceed 3.00% of the Sale Price (Some States are Lower)
- Notify Customers with Signage on the entrance and at checkout
- Notify Customers with Signage on the entrance and at checkout
In contrast, a cash discount involves offering a discount for paying in cash. Most merchants add “Non-Cash Adjustment” fees, “Admin Fees”, “Customer Service Fees”, and many other fees that are designed to appear as if they apply to all sales regardless of payment type. As a result, these fees are then “Discounted” or removed completely for customers that pay in cash.
- Cash Discount Rules-
- Legal in all 50 States
- Display both the Credit price and the Cash price (Dual Pricing)
- Alternatively, advertise the Credit price and manually discount for cash.
- Disclose discount with Signage at store entrance and at checkout.
- Display discount as line item on receipt
Violations and Fines
- Surcharges are being added to Debit Card Transactions
- Surcharges are above the maximum amount of 3.00% (Lower for some states)
Ultimately, the duration of a business’s non-compliance determines the monetary fines for violating surcharge rules.
| First Notification of Non-Compliance | $1,000 | Fine |
| Compliance Deadline Not Met- | $25,000 | Fine |
| 30 Days Non-Compliance | $50,000 | Fine |
| 60 Days Non-Compliance | $75,000 | Fine |
| 90 Days Non-Compliance | $100,000 | Fine |
| 120 Days Non-Compliance | $125,000 | Fine |
| 150 Days Non-Compliance | $150,000 | Fine |
| $25,000 Each Additional Month |
The Bottom Line
In conclusion, it’s crucial for businesses to implement a cash discount compliantly from the outset. To ensure compliance, businesses should work with a processing company that understands the distinctions between a cash discount and a surcharge as defined by card brands and the law.
Thankfully, Synapse knows the difference and can help keep you on the right side of the rules. Reach out to us today and access some of the “Best credit card processing fees” available in the industry today.
For more information on the rules, check out the guidelines from the card brands:
