The question this week is from an agent whose cash discount client has some concern about legal threats from that ½ of 1% of disgruntled customers.  The client is a 45-location well-known fast-food chain in the southeast which has completed the first month with the agent.  The POS changeover was smooth, and the program is going well for the business.        

Although the agent didn’t have exact numbers, the 45 stores are doing an estimated 5,000 transactions per day.  The signage posted is standard language similar to this:  “Non-cash adjustment notice:  all sales subject to a 4% non-cash adjustment fee at check out.  Customers who pay with cash will receive a 4% discount.”  Of the estimated 100,000 transactions in a full month, there are two consumer complaints generating concern for the client.  So, complaints are less than ½ of 1% – hardly any.  
These complaints both used similar language, saying “I used your drive-thru.  I used a debit card for payment but wasn’t informed of any charge for using a card. There is no signage visible in the drive-through.  I was charged a 4% surcharge without my knowledge.  A merchant SHALL NOT charge a surcharge on debit card purchases.  Further, a merchant may only charge the amount they are being charged on credit card purchases.  I highly doubt you are paying 4%.  This is fraud.  I could take legal action against you.” 

Obviously, a merchant of this size is very disturbed by any language mentioning legal actions.  To further complicate this particular situation, the word “surcharge” does appear on the receipt.  How should this situation be handled effectively for merchants and consumers?  

Actual Problem and Perception of the Problem
In this instance, there is an actual problem and a perceived problem.  Customers are actually very unlikely to take legal action.  If anything, they would be more likely to send a picture of the receipt and complaint to the bank which issued the card.  If that happened, the issuing bank would forward a compliance complaint to the card brand. 

The merchant and customer who are not properly informed may perceive this as a legal issue involving breaking the law.  However, unless the state has a law against surcharge and unless there is a true compliance failure, this is simply an infraction of card brand rules.  There is no legal liability involved.

If customers do pursue the issue: 

·       The card-issuing bank is notified. 
·       The bank files with the card brand.
·       The card brand contacts the acquiring bank.
·       The acquiring bank reaches out to your company.
·       The acquiring bank presents the alleged problem and asks for your defense.
·       Merchant sends a picture of the sign posted in the business and the receipt in question to the acquiring bank or ISO (there are many different definitions for organizations in our industry!) 
·       The message goes back up the chain.  
·       You’ll get one of two responses:  “Stop doing this.” or “That’s okay; no problem.”

Is it “just a sign”?
I don’t know the company involved.  So, I’m not trying to bash anyone when I say I’m not a fan of the language on the sign.  Those in our industry don’t seem to realize the only real liability happens when a compliance complaint happens.  And the only thing the card brand asks for is picture of the sign and receipt.  

Thus, the language on that sign is the only thing that really matters.  The word “surcharge” on the receipt is only problematic because it raises a red flag. 

According to the Durbin Amendment, Visa/MasterCard are specifically prohibited from having anything to do with this discussion if it’s truly a compliant cash discount program. 

The sign needs to be very clear that this fee increases the “regular” price.  In my personal opinion, if the sign doesn’t have the words “regular price” and/or the words “in-kind incentive,” that’s stupid; I don’t understand that!  
The only rationale for these programs is in the Durbin Amendment.  And in the Durbin Amendment there are only two compliant ways to do Cash Discounting:
  1. Inform consumers of the regular price.  (The Amendment doesn’t say HOW to inform them; merchants don’t have to raise the ticket price of entire inventory.)  The fee can’t be more than the regular price of which consumers are informed.  I suggest, “We’ve increased the regular price using a non-cash adjustment.  If using cash, you get a discount from that regular price of ____.”
  2.  In-kind incentive.  In-kind incentive isn’t defined!  Some ambiguity in the law there.  

I like business signage to mention both terms “regular price” and “in-kind incentive”.  And I’m even in favor of including the legal language in small print.  Then when rare customer complaints come, I advise that merchants do two things:

  1. Send a picture of the sign to the unhappy customer.  If the legal language is on there, it will scare the consumer.  What the merchant is doing is obviously justified by law.  Also, the merchant should encourage the customer to send a picture of the sign and receipt to the bank that issued card.
  2.  Merchants should have the attitude which says, “I’m so sorry we neglected to point out the sign to you; we never wanted to surprise you with our price increase.  The cost of payment processing has increased.  So, we had to decide whether to increase prices for everyone or just for those using cards.  We’ll gladly give you a $___ gift card for your inconvenience.  Next time you’ll know to expect this higher price.”

I’m not an attorney; none of this is legal advice.  But I strongly encourage you to make sure business signs and receipts go together.  The key priority is for the customers to know the “regular price.”  Merchants can’t legally charge EXTRA for paying with a card.  

Employees should be trained to use correct wording.  And they should know how to handle the situation of a disgruntled customer.

AGENT QUESTION:  Could you please say the legal language again?
MY ANSWER:  I just did this for a consulting client and will read it for you.
In big, bold print:  CUSTOMER NOTICE

Below that:  “Prices listed in store [or on menu] and on advertisements reflect our cash price.”

Next line:  “Our regular price includes a 3.99% non-cash adjustment.”

Next:  “We offer savings at the point of sale when you pay cash.”

In small print at the bottom:  

“The purpose of the non-cash adjustment is to incentivize customers to pay with cash.  This is an in-kind incentive in compliance with Section 2A of the Durbin Amendment, a provision of United States Federal Law 15USC and 169 O-2.  We further provide a cash discount from the regular price in accordance with Section 4C4 of the same document.  This sign is meant to inform customers of our regular price in compliance with this law.”
Agents should realize and accept that customer complaint IS a regular part of cash discounting.  You won’t know for a few months the actual percentage of customers complaining about your new client.  Some may have already filed a complaint to the bank.  You’ll find that out later.  I talked recently to an agent with 7-8 complaints a day.  The business hasn’t lost any customers, but they get the complaints.   

The most risk-adverse merchants are the big ones.  Giving this information to their attorneys is important to the bigger merchants.  For a company attorney to have no idea what’s coming is not good!  The legal department isn’t worried about risk liability; they have that all the time.  

Legality and compliance never came into the normal sales conversation.  However, when selling a big company, you should have that conversation.  Allow the business owner to give their attorney a heads up.  Talk about how to handle these complaints.  Help the big businesses get the process in place beforehand.