The Payments Experts Podcast
Expert payments attorneys discuss the electronic payments industry from a legal perspective.
The Payments Experts Podcast
Why Your “Cash Discount” Program Might Be Illegal | Surcharging Dual Pricing and Debit | PEP077
Surcharging, Dual Pricing, and Debit: The Compliance Traps No One Warns You About
Hidden fees, stacked fines, and a maze of rules—merchant pricing isn’t just a line on a receipt, it’s a legal and operational minefield. We dive into the real differences between dual pricing and cash discounting, why debit transactions should not be treated like credit, and how a simple surcharge can trigger state law violations, card brand penalties, and even deceptive practices claims. Along the way, we share field stories: demand letters over 45 cents, opaque reporting that invites abuse, and fines that stack across separate entities with common ownership.
Global Legal Law Firm team members Christopher Dryden, Leo Arzumanyan, and Jeremy Stock, unpack how dual pricing, cash discounting, and surcharging collide with card brand rules and state laws, and why debit often gets treated unfairly. We share real cases of opaque fines, stacked penalties, and deceptive practices demand letters, then lay out a practical playbook to get compliant and stay there.
• dual pricing versus cash discounting and consumer clarity
• state-by-state rules and conflicting caps
• debit costs and the “actual cost” requirement
• opaque enforcement and reporter abuse
• deceptive practices laws and demand letters
• small merchant burden and stacked fines
• technology limits in POS compliance
• a practical compliance playbook and documentation
• why proactive guidance reduces risk
We walk through a clear framework to cut through the confusion. First, understand what your state actually permits and where those permissions conflict with card brand caps. Second, build a pricing model that reflects “actual cost,” especially for debit, and make sure your disclosures are clear and conspicuous on menus, signs, and receipts. Third, pressure test your POS settings: can it identify card types and apply rules correctly, or will your “simple” setup create non-compliance at scale? Documentation, staff training, and routine audits matter as much as the pricing model itself.
Our goal is to replace guesswork with a practical playbook that reduces risk while maintaining customer trust. Whether you run a single restaurant or manage multiple entities, you’ll learn how to choose between dual pricing and cash discounting, align with the strictest overlapping standard, and prepare for scrutiny from card brands, regulators, and plaintiffs’ attorneys. If you have a story about unclear enforcement or surprising fines, share it with us—we’re collecting real-world cases to push for clarity. If this conversation helps, subscribe, leave a review, and pass it to someone who handles pricing or compliance on your team.
**Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.**
Visit us today: https://www.globallegallawfirm.com/podcasts/
A payments podcast of Global Legal Law Firm
So look, a couple of years ago when this stuff kicked off, we joked. We could have gone out and gotten class action after class action. We joked, like, oh, let's go blah, blah, blah, right? But there are people legitimately out there looking for these violations, probably like the more that this gets into the street, like the marketplace, and people see it, the plaintiff's bar is going to start to see some of this stuff.
SPEAKER_01:I think we're going to see an uptake, just like we see it with the ADA attorneys.
SPEAKER_05:They go and look for ADA violations or you know, because there's no written contract with an arbitration provision between the restaurant and the person ordering. Right. Right? Like it's a problem, right? And so the genesis of my email, for which I was just harangued repeatedly about was all about, hey, look at all these things that are happening that we're just trying to really help.
SPEAKER_00:Welcome to the Payments Experts Podcast, a podcast of global legal law firm. We hope you enjoyed this episode.
SPEAKER_01:In my opinion, and some states like New York actually have very clear laws now. Under New York's general business law section 518 actually lays out how you're supposed to do it. And they even released all sorts of FAQ guides that lay out very clearly examples. But you know, dual pricing is when you have two prices, similar to what you would see when you go to a gas station, and it tells you the card price and the cash price. And I think that model is actually one of the more clearer ways. It's probably more difficult for merchants to do, I would assume, because you have to label everything with two prices so it increases costs. But dual pricing just effectively lists two prices, the credit card crop credit card price and the cash price. And that, in my opinion, the reason it works so well when it's done right, is that there's not really room for ambiguity. The customer comes in and they they already know. They know, like, you know, if I'm buying this good or this service, if I'm gonna use my credit card, I'm gonna pay one price. If I use cash, if I pay with cash, I'm gonna get paid another, or I'm gonna get charged another price. Um, I think that's more clear versus cash discounting is there is a list price. So let me, you know, for example, I go, I want to buy a bag of chips for$5, right? That if you're doing it properly, and it depends again on the states, you know, Visa versus MasterCard, but let's just say you're in New York, if you're doing cash discounting properly, the list price should include the surcharge built into it. So that$5 that I'm seeing as a consumer, I should be when I'm paying when I'm checking out, it should be five plus tax. There should not be anything on top of that. And then if I'm paying with cash at checkout, it should be the five dollars minus the discount I get for cash, and that's my cash price. So that's kind of how it works. Um, I think I think where things get messy is kind of what we've been talking about this whole podcast, is that a lot of states have their own ways of doing things. Some states allow you to surcharge in a different manner where you can add the percentage on top of the list price. New York doesn't allow that, California doesn't allow that. Virginia, as of I want to say July 1st, no longer allows that. Virginia is now copying California's junk fee uh regime. So it's kind of like we're we're a bit all over the place.
SPEAKER_05:Yeah, I mean that's so go back to the cap thing, right? Like the idea is I want to pass along the credit card fee, right? So if you're gonna pay in cash, I'm gonna reward you by like you'll you'll get a discount off because I'm absorbing and putting into the price that's that the credit card price that's listed, I'm putting that as the price. And then if you come in with cash, but I'll go back to the debit card thing. The intention, if you go look at law states that have laws like New Jersey and Colorado, the intention is to pass along the actual cost of the processing. Can't be more than that, and it can't be more than that, right? So if my credit card effective rate looking at my transactions is over three percent and I'm only getting three percent, but then I'm hitting debit card rates that are lower, but I'm now I've I've got them, you know, raising up to the level. Am I truly passing on the cost, right? I mean, I don't, I'm not a mathematician, but I could see how that wouldn't be a straight 3%. You know, right? I mean, so there's compliance with the card brands, but then you could be a great salesperson, be fully in tune with all of this stuff, tell a merchant how to be compliant with the card brands, and still be violating state law, depending on what state you're in. So yeah, the fact that there's not any standardization among these things, because look, I don't know, I don't know much about POS systems from the internal side. Can they automate it to recognize the Visa versus the MasterCard? Charge something different. I mean, you would think so. They're trying to make this simple, but it's just in reality, it's not simple.
SPEAKER_01:I don't see why there can't be some sort of software that that you know diverts the transaction to the right card brand, depending on.
SPEAKER_05:Well, I look, I would think that it's available, but it's gotta be a sophisticated piece of software that has application to a provider that's going straight back to the card brands to really even know. Like, I don't know what all that entails. Yeah, yeah, because in that infrastructure, I'm not really sure if that's super burdensome, like or if that's easy to code out to. Like, I don't really know, but there's just there's just all sorts of um I mean, besides the at least in my opinion, that the fines don't necessarily the amount of the fines and the one size fit all aspect to it doesn't really it creates a a greater penalty to smaller mom and pop stores that they might only do ten thousand dollars in sales in a month and five thousand now has to be hit from a visa fine, right? Like that's why I see agents in ISO shoulder shouldering some of these things and trying to find compliance as the solution, right? Like this person, I'll shoulder their fine, but maybe I'll be able to now really have a true compliant program by addressing this fine and figuring out how do we do it better from here, right?
SPEAKER_01:Like we're also even seeing some clients just recently yesterday who are in the position where they actually now have to change their strategies because they might not be able to shoulder these costs anymore. Yeah, it's because it's it's just getting so burdened.
SPEAKER_05:They're gonna lose, they're gonna like they'll lose merchants and then we go into the next one as that merchant goes on to the next provider. Do we scrub them for forever? Yeah, exactly.
SPEAKER_00:Which goes back to your previous issue. Yeah, right. And um I've got a question for you. Sure, yeah. Um because it's two-year example. The classic example everybody understands you go to the gas station, you as you were saying, Leo, you see the uh card price and the cash price. Here's my question for you debit card, not considered cash. See, that's so what is it considered?
SPEAKER_05:Uh but here's the crazy part the debit card is the the cost of the debit transaction is inherently lower because it is inherently less risky. So when I put in my PIN number at the POM, right, I have the physical card, I have the code attached to it, right? I'm doing what I'm supposed to do as the consumer, and as the merchant, I'm capturing what I'm supposed to capture to make this not be charged back, but yet we're tacking on all of this bigger percentage. Like there's no risk to the debit card transaction. How many, how many pen debit transactions ever get returned? I don't know what the percentage is, but I gotta imagine it's it's lower. It's a small amount, totally. Yeah, like it's so that you know that's one of those things where I just I look the the story that really kind of like threw me. There well, no, I'll give you two of them. But the story that really threw me was one of our clients said that a competing uh agent ISO in the same geographic area was using the regime to create fines, like asking merchants for receipts in a non-compliant way to actually then report them. And and so this is one of my questions that I sent off was okay, so people are abusing the system to create fines as a tool to then go in and sell that person on a compliant program potentially, right? And kind of uh unfairly compete. And in addition to that, they're doing it, they're creating probably more confusion for the merchants. They're doing it to merchants that are less sophisticated, and I don't I didn't really know what to do with that one because it seems like really to me not the intent that Visa MasterCard or anybody else would ever have of like how to treat these these fine regimes. But one of the questions that I would kept coming up with how do you compensate reporters? And what is the process for people when they report to provide information to the card brands? Because I think you know, it's kind of like that that fundamental right in the Bill of Rights, the ability to maybe confront your accuser.
SPEAKER_00:Right, right, right?
SPEAKER_01:Like I would ask, how are you verifying what that what is being reported? And it's crazy.
SPEAKER_05:And so I asked, like, you know, what's what's the process for this to take place? Because I think that there's not a lot of clarity on that side of things, too. Like it as the card holder, if I'm a salesperson that's in the space and you start to see that, I don't even know how you would scrub for that, right? I mean, I get it, but at the same time, it it just leaves this open area of just open for abuse, right? Like it it just it allows ambiguity for the potential to abuse something that has one intent and being used for a different one.
SPEAKER_01:Yeah, those are those are great points. And actually, one thing I wanted to bring up um that we haven't even discussed, it just came to mind because it's actually important. So, you know, we've mentioned the car brand rules, we've mentioned state laws when it comes to surcharging, dual pricing, et cetera. But there's also a whole other category of state laws that also can be implicated when we you know when it comes to these matters, and that's various states have you know a form of deceptive market. All states have a deceptive practice. All states have a form of deceptive marketing practices rules where if if you're not providing clear and conspicuous disclosure or whatever the you know the verbiage is, then you are in violation of those laws, and those laws come with very heavy fines and penalties.
SPEAKER_05:One of like one of our ISOs sent us a restaurant, and they had gotten a demand letter from a local attorney for a violation of the state's deceptive practices laws. And it was literally for charging an extra 45 cents and not disclosing the surcharge and not having signage. And then the question becomes, well, how many people did they do that to, right? And what's the the true damage? Well, the attorneys don't care because the attorneys just want to litigate it to get their attorney's fees. And it's for consumer protection because at that point it's the cardholder, right? And they were like, Well, are you gonna respond? And I'm like, No, I'm gonna duck my head. I'm gonna tell the restaurant, make sure you're doing everything. I'm gonna give them all of the marketing collateral, and I'm gonna hope the the past lies and doesn't come back to haunt them. If I respond to this thing with to the attorney, I'm inviting him. Like if I tell him I've remedied the problem, I'm inviting, I've admitted there was a problem, right? Like, so now they're a target. I'm like, I'd I'd do nothing.
SPEAKER_01:Wow. Right. And the reason I wanted to bring this up was because it just goes to show you, you know, if you're in this space, if you're a merchant processor, whatever the case may be, you have so many different competing landscapes to to abide by. You got the brands, you got the state rules when it comes to surcharging, you got the deceptive.
SPEAKER_05:But it goes back to the reporting, right? Yeah, and so look, a couple of years ago when this stuff kicked off, we joked. We could have gone out and gotten class action after class action. We joked, like, oh, let's go blah, blah, blah, right? But there are people legitimately out there looking for these violations, probably like the more that this gets into the street, like the marketplace, and people see it, the plaintiff's bar is gonna start to see some of this stuff.
SPEAKER_01:I think we're gonna see an uptake, just like we see it with the ADA attorneys, they go and look for ADA violations or you know, big things.
SPEAKER_05:Because there's no written contract with an arbitration provision between the restaurant and the person ordering. Right. Right? Like it's a problem, right? It's and so the genesis of my email for which I was just harangued repeatedly about was all about hey, look at all these things that are happening that we're just trying to really help. Yeah, like I understand that, like in certain instances, we think that you're abusive in the way that you handle this thing, but none of the instances that I'm talking about right now have anything to do with that. It has to do with, hey, there are problems in this marketplace right now. How do we get clear understanding? And and look, name anything else but a law that there's really no gray area. You either are in compliance or not in compliance, right? So when Visa starts to dispense these things out with no due process, how are these not laws? Right. Like I don't I don't understand how these don't have the equivalence of a of a law, right? The with the power of visa, the virtual monopoly, it's the power is I don't even want to tell you that I have a problem because I'm afraid of your reprisal. Yeah, right.
SPEAKER_01:Whether that's real or not, right? That's what's happening. Yeah, I mean, these are real world case studies. We're not just coming up with hypothetical scenarios that's a good idea. Almost every day we're dealing with that.
SPEAKER_05:And if you would you would think that if they really cared about compliance with their rules, at a certain point in time it looks like money generation. Right? Like I I I can't see it any other way because the fines, they don't like if they really truly wanted compliance, they would probably have a fine regime that was policed with the reporters, and there was like, again, like there's so much that's opaque that you just can't see through it. Like you don't know what's going on at all.
SPEAKER_00:It makes me think, gentlemen, of Wall Street, right? You guys remember, you know, the 2008 housing crisis and that great book by Michael Lutrix. The big short, right? It almost has that, it smells almost like that, where they want to do what they're doing behind that opaque barrier, which is just leave us alone and do what we say. And when people reach out legitimately to say, well, what is it we're supposed to do? There's the they get black walled.
SPEAKER_01:And I would also say, you know, if let's say they say that, just you know, do what we say. Let's take Minnesota, for example. Minnesota allows up to five percent. Yeah, but that's not even possible. That's not even possible.
SPEAKER_05:So again, I mean, so that's that's the crazy part, right? Like Minnesota's like, yeah, you can charge up to five percent, right? So I could be compliant with the law, but I'm always gonna be compliant or non-compliant with the card.
SPEAKER_01:Always gonna get hit with the fines because I'm violating your rules. So it's just really it comes down to I think I think businesses have to come up with a sort of a playbook, a strategy, and first and foremost, and that's just really understand the rules to the extent you can't.
SPEAKER_05:Here was another one that came out, which I thought this was wrong, just straight up. I've asked the our client to give us the merchant, and because it's a restaurant group, and he he hasn't come through. I I don't know if that's because he doesn't want to rock the boat with his merchant, but his merchant was pissed, and I'm all that's the exact one that I want a merchant. I'd even have him come on the podcast and talk about it. Restaurant group, four or five different business entities, four or five different operations, different restaurants, right? All operating independently on their own, all with their own EIN number, right? All with the same owner. Okay, it was a thousand dollars. Restaurant C got a fine, it was five thousand because now that was a second fine because it all has the same owner, even though they're totally different businesses, different employees, everything is totally different. They stacked the fine to the second second one because it all has the same owner. That could be a silent owner, right? That could be somebody who isn't part of the operations, they just happen to own them, right?
SPEAKER_01:And I don't think the rules even allow for that. I don't see that anywhere in the rules.
SPEAKER_05:Trust me, like where in the rules would that even be? That one came up and I went, oh, okay. Well, dude, I would definitely want that one. Like that, that to me seems wrong. And it seems like if that was going to be enforced in that manner, if I'm that person, I want to understand my risk of compliance, right? Yeah. But what you said is important, they they haven't gone back to you because they probably don't want to rock the boat, right? I don't know. I I I I don't think any merchant want or any agent wants to spot, shine a spy light on its on its merchants and their business practices. It's easier for everybody to duck and cover and hope they don't get discovered that they're doing something wrong because they don't know how to do it right.
unknown:Yeah.
SPEAKER_01:Yeah. So I think I mean, I think Chris, uh, I guess to close things out, how would you say is the is the best way forward?
SPEAKER_05:Look, guys like us, whether it's our firm or somebody else, like somebody who actually has real-world examples of what's happening, it's just an open conversation of what's a bright line and what's not, and just to be aware of it all, and however much you can like fill the gaps with your own operations to have like some sort of check and balance for now until there's an actual dialogue that's able to be had, that's what we do.
SPEAKER_01:Yeah, and just to add on to that, yeah, I would say you know, if you're a merchant out there who's listening, watching the podcast, your processor, whatever the case may be, an agent, you know, we deal with this on an almost daily basis. We dive very deep into every rule, whether it's the car brand rules, state rules, whatever the case may be, where we're going in, we're updating our internal white papers on an almost monthly basis. It started off quarterly and now it's almost monthly because there's just so many things at play. So if you're out there, you need guidance, I just say reach out to us.
SPEAKER_05:I would also say this to everybody who's participating in this community, if you have a story of the application of justice that doesn't seem just in this regime, and you want to share it with us, reach out. Reach out because we'll put it on the podcast. Like if I verify it, I'm just gonna keep talking about all these problems, and maybe Squeaky Wheel gets the oil, or maybe I get all of my credit card shut off. I have no idea.
SPEAKER_00:Chris makes up and can't use any of the things, Joe, but you know, I mean it's yeah, let's get an annex card quick.
SPEAKER_05:Yeah, exactly. Yeah, or or maybe I start to actually go to Venmo. I've never used it, but yeah.
SPEAKER_00:Well, gentlemen, this was a really, really interesting conversation. I think it brings to light a lot of things that I think a lot of people might think about. A lot of merchants, as we talked about today, they're dealing with it on a real world basis, but people don't know what to do. And I know this might sound a little self-serving, but they need guidance. This firm does this every day.
SPEAKER_05:It is self-serving, but I'll tell you what, man, we don't like the whole reason for the podcast is to spread the information. And we can help. It's a lot of information, it's a lot to cover. Like it's stuff that we're in every single day. Right. So, yeah, it's much easier to come to us. Like, could I figure out how to change my toilet? Yes. I'm gonna probably call somebody to do it for me because it's a better use of my time to not be doing that.
SPEAKER_01:And just remember the fines are so significant. You want to get compliant before you reach out. Exactly.
SPEAKER_05:Like, this is one of those things where you got to come up with five grand or 25 grand. It did, it's it's a bite for people. And at the end of the day, if you're gonna participate in the scheme, you have to follow the rules, whatever those may be. That's why I do believe that the podcast is to share the information. If you guys have instances where you're like, we didn't know what to do, or blah, blah, blah, we just want to get them out there. Yeah, I mean, more than anything. Yeah, it's self-serving. If you if you got a pretty big operation and you don't want to shoulder like significant cost potentially, call us.
SPEAKER_01:We'll we'll help. Yeah, because I'm of the mindset of preventing problems before they occur to the extent you can. You can't prevent every problem, but if you can, why not get ahead of it before it gets out of hand?
SPEAKER_00:100%. Well, you guys, thank you so much for sharing your expertise with us and our audience today. Thank you for listening this long to the Payments Experts Podcast, a podcast of global legal law firm. We've had in studio today our founding and managing partner, Christopher Dryden, as well as Leo Arzimanian, one of our transactional associate attorneys. It was a great one, gentlemen. We'll see you on the next one. Bye-bye. Thank you for listening to this episode of the Payments Experts Podcast, a podcast of Global Legal Law Firm. Visit us online today at Global Legalaw.com. Matters discussed are all opinions that do not constitute legal advice. All events or likeness to real people, and events is a coincidence.