Вы находитесь на странице: 1из 5

Reading on Behavioral Economics

Selected by Seung-gyu JO

Credit Card Surcharges vs. Cash Discounts

Written by Nickel


Have you ever noticed that certain businesses offer a discount

for paying with cash vs. credit? This practice is particularly
common at gas stations, though youll sometimes see it at other
businesses, as well. And yet, as weve discussed, its against
the policies of the major card networks (Visa, MasterCard, etc.)
and, in some cases, against state laws to charge a
premium for using a credit card.

So whats the deal? Are these businesses breaking the rules?

As it turns out, dual pricing is allowable, but only if the vendor
advertises the credit card price and then offers a cash discount
from there. In contrast, theyre not allowed to advertise
something at a certain price and then tack on an upcharge for
using a credit card. Seems like a silly distinction to me, but it is
what it is.

Given this loophole, a number of businesses have taken to

incentivizing cash by passing a portion of their savings on to the customer. From a consumer
standpoint, you have a decision to make. Is it worth giving up the convenience of your credit (or
debit) card, as well as the cash back rewards, in return for a cash discount? In some cases, yes.
In other case, no. It all depends on how big the discount is and how much extra cash youd
have to carry around to cover the expenditure.

Im mainly bringing this up today because I recently received an e-mail from a reader named
Joe who ran into something similar at the doctors office. Apparently hes been dealing with an
eye surgeon who is charging $5400 for a certain procedure, but wants more if you pay with a
credit card. Joe was wondering if this is allowable.

In short, it all comes down to how the dual pricing is presented. If the doctor is advertising the
procedure at $5400 and then upcharging if you want to use a credit card, hes running afoul of
the credit card rules, and possibly state law. If, on the other hand, he is charging (say) $6000,
with a 10% cash discount, thats perfectly allowable. Again, its a silly distinction, but it is what it

Weve actually run into this ourselves at the orthodontist, where they offer both a cash discount
and a discount for paying for the full course of treatment in advance vs. doing an installment
plan. Since weve been in the fortunate position of having the cash on hand, we jumped at the
chance and saved a good bit of money.

What do you think? Should dual pricing be allowed? Do you choose to pay with paper over
plastic when theres a discount involved?

Merchants Considering Credit Card Surcharges

July 16, 2012

Starting this week, prices are 2 percent lower on ScanMyPhotos.com. At the grocer Kroger,
executives are contemplating charging two prices for groceries a lower price when shoppers
pay with cash, and a higher one when they use a credit card. And at restaurants across the
country, owners are weighing the wisdom or lack of it of a surcharge on bills paid with
credit cards.

Businesses on Monday sorted through the repercussions of a multibillion-dollar settlement late

last week with Visa and MasterCard, and there was little consensus about how things would
settle out. The tentative deal allows merchants to offer discounts to customers paying with cash
or checks, and to impose fees when they pay with credit cards. Businesses can also negotiate
directly with Visa and MasterCard over the rates they pay for credit card transactions.

In a symbolic move, ScanMyPhotos.com, one of the plaintiffs in the class action that led to the
settlement, dropped its prices to demonstrate that cardholders benefit from the deal, not just
people who pay with cash, said Mitch Goldstone, the chief executive. Mr. Goldstone reckoned
that merchants and Web sites like his, which accepts only credit card payments, will now be
able to negotiate with the credit card companies for lower transaction fees.

Others were less optimistic about the benefit for consumers and businesses. In a statement,
Scott DeFife, the executive vice president for policy and government affairs at the National
Restaurant Association, said the terms of the settlement were far more complicated than the
banks and the credit card companies had portrayed.

This settlement doesnt solve all problems, and we would call on the card companies to look at
this as an opportunity to change their long-term practices and start a new dialogue with their
merchant customers, Mr. DeFife said.

Under the terms of the settlement, Visa, MasterCard and banks including JPMorgan Chase and
Bank of America will pay retailers about $6 billion to settle claims that they had engaged in
anticompetitive practices in payment processing.

Retailers could start imposing a surcharge for payments made by credit cards as soon as
December, if the court grants preliminary approval of the settlement, said K. Craig Wildfang, a
lawyer with Robins, Kaplan, Miller & Ciresi who represented plaintiffs in the lawsuit.

But because the settlement results from a class action, plaintiffs can opt out of it or object to it.
One plaintiff, NACS, the convenience store association, has said it will reject the settlement, in
part because it does not stop Visa and MasterCard from raising rates.

For some retailers, the outcome of the settlement could be different prices at the checkout
counter depending on how customers pay, said Keith Dailey, a spokesman for Kroger. The
discounting aspect is, in our view, a very powerful tool at a merchants disposal, he said.

Under the terms of the settlement, retailers can disclose to customers how much each type of
payment costs retailers, and give discounts for those paying with cash, debit cards or low-frills
credit cards that cost retailers less than traditional cards.

Through discounted pricing on electronic payments, we can begin to inform our customers and
also drive our customers through using more efficient and lower-cost products, Mr. Dailey said.
He said Kroger had not yet decided how this would work for instance, whether it would have
signs on merchandise showing two-tier pricing or whether the differences would be applied at
the register.

Given a shaky economy, many restaurants and other retailers said they had no plans to charge
more when customers paid with credit cards.

Shopping with a credit card is a convenience for our customers and is an important part of our
customer service, said Carolyn Beem, a spokeswoman for L.L. Bean. We have absolutely no
plans to add a surcharge for credit card purchases.

Rick Camac, chief executive of the Fatty Crew group of six restaurants, including Fatty Crab,
said that customers might see it as another way youre trying to get at them.

I think you have to take the hit, or make it up by adjusting your prices, Mr. Camac said of
paying for the credit card fees.

Rich Jeffers, a spokesman for Darden Restaurants, which operates the Red Lobster, Olive
Garden and Longhorn Steakhouse chains, among others, said customers would pay the same
price regardless of payment method. Whether our guests choose to pay with cash, credit, debit
or even one of our gift cards, the amount doesnt change, Mr. Jeffers said.

For luxury restaurants, there was also little expectation that customers who pay with credit cards
would be treated differently. Its not a very elegant thing to do, said Eric Ripert, executive chef
and an owner of Le Bernardin in Manhattan.

Still, many retailers and restaurateurs were preparing to press Visa and MasterCard for better
transaction rates so they would not need to pass costs on to customers or absorb them. A
big sign at checkout already common at many gas stations offering shoppers discounts for
using cash would presumably stop some people from using cards giving merchants some
negotiating power.

All merchants will, for the first time, have some leverage with the big banks, said Mr. Dailey of

Mallory Duncan, general counsel for the National Retail Federation, said he had doubts that
stores would be able to negotiate good rates with the credit card companies under the terms of
this settlement.

Now, they wont negotiate with the biggest merchants in the entire country, so how are 100
hardware stores going to come together and have any kind of effect? Its illusory, he said.

Glenn Collins and Ann Carrns contributed reporting.