PEP Episode 077 — Why Your “Cash Discount” Program Might Be Illegal | Surcharging Dual Pricing and Debit

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.*

Transcript

Christopher Dryden (00:00):

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. But there are people legitimately out there looking for these violations. Probably the more that this gets into the street, the marketplace and people see it, the plaintiff’s bar is going to start to see some of this stuff.

Leo Arzumanyan (00:26):

I think we’re going to see an uptake, just like we see it with the ADA A attorneys. They go and look for aada a violations

Christopher Dryden (00:31):

Because there’s no written contract with an arbitration provision between the restaurant and the person ordering, right? Right. It’s a problem, right? It’s a problem. 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

Jeremy Stock  (00:52):

Help. Welcome to the Payments Experts podcast, a podcast of global legal law firm. We hope you enjoy this episode.

Leo Arzumanyan (01:09):

Dual pricing, I think is actually probably one of the easiest ones to understand in my opinion. And some states like New York actually have very clear laws now under New York’s general Business Law, section five 18 actually lays out how you’re supposed to do it. And they even released all sorts of FAQ guys that lay out very clearly examples. But dual pricing is when you have two prices similar to what you would see when you go to the gas station, and it tells you the card price and the cash price. And I think that model is actually one of the more clear 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, 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.

Leo Arzumanyan (01:58):

The customer comes in and they already know. They know if I’m buying this good or this service, if I’m going to use my credit card, I’m going to pay one price. If I use cash, if I pay with cash, I’m going to get paid another or I’m going to get charged another price. I think that’s more clear versus cash discounting is there is a list price. So for example, I go, I want to buy bag of chips for $5 if you’re doing it properly, and it depends again on the states 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 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, I check out, it should be the $5 minus the discount I get for cash, and that’s my cash price. So that’s kind of how it works. I think where things get messy is 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 regime. So it’s kind like we’re all over the place.

Christopher Dryden (03:26):

So go back to the cap thing. The idea is I want to pass along the credit card fee. So if you’re going to pay in cash, I’m going to reward you by, you’ll get a discount off because I’m absorbing and putting into the price, 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 states that have laws like New Jersey and Colorado, the intention is to pass along. The actual cost of the

Leo Arzumanyan (04:01):

Processing can’t be more than that in

Christopher Dryden (04:03):

Those states, and it can’t be more than that.

Christopher Dryden (04:06):

So if my credit card effective rate looking at my transactions is over 3% and I’m only getting 3%, but then I’m hitting debit card rates that are lower, but now I’ve got them raising up to the level, am I truly passing on the cost, right? I mean, I’m not a mathematician, but I could see how that wouldn’t be a straight 3%, 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. That’s wild. Yeah. The fact that there’s not any standardization among these things, because look, 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. You would, so I’m trying to make this simple, but it’s just in reality, it’s not simple.

Leo Arzumanyan (05:07):

I don’t see why they can’t be some sort of software that diverts the transaction to the right card brand depending on,

Christopher Dryden (05:14):

Well, look, I would think that it’s available, but it’s got to 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. I don’t know what all that entails, because in that infrastructure, I’m not really sure if that’s super burdensome or if that’s easy to code out to. I don’t really know. But there’s just all sorts of, I mean besides, 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 greater penalty to smaller mom and pop stores that they might only do $10,000 in sales in a month, and 5,000 now has to be hit from a visa fine. That’s why I see agents in ISO shouldering some of these things and trying to find compliance as the solution. 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?

Leo Arzumanyan (06:30):

And we’re also even seeing some clients just recently yesterday who are in the position where they actually not have to change their strategies because they might not be able to shoulder these costs anymore because it’s just getting so burdensome.

Christopher Dryden (06:43):

They’ll lose merchants, and then we go into the next one as that merchant goes on to the next provider. Do we scrub ’em for

Jeremy Stock  (06:53):

Yeah, exactly. This goes back to your previous issue. I’ve got a question for

Leo Arzumanyan (06:57):

You. Sure. Yeah.

Jeremy Stock  (06:58):

Because it’s two year example. The classic example, everybody understands, you go to the gas station, as you were saying, Leo, you see the card price and the cash price. Here’s my question for you. Debit card

Christopher Dryden (07:12):

Not considered cash.

Jeremy Stock  (07:13):

See, so what is it considered?

Christopher Dryden (07:16):

But here’s the crazy part. The debit card is 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 pump, I have the physical card, I have the code attached to it, 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. There’s no risk to the debit card transaction. How many Penn debit transactions ever get returned? I don’t know what the percentage is, but I got to imagine it’s

Jeremy Stock  (08:02):

Lower

Christopher Dryden (08:02):

A small amount. Totally. Yeah. So that’s one of those things where I just look the story that really kind of threw me, 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 agent, ISO, in the same geographic area was using the regime to create fines, like asking merchants for receipts in a noncompliant way to actually then report them. 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 and kind of 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 didn’t really know what to do with that one. It seems like really to me, not the intent that Visa, MasterCard or anybody else would ever have of how to treat 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?

Christopher Dryden (09:42):

I think it’s kind of like that fundamental right in the Bill of Rights, the ability to maybe confront your accuser. And

Leo Arzumanyan (09:54):

I would ask, how are you verifying what is being reported

Christopher Dryden (09:58):

Correctly? And so I asked, 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, 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. I mean, I get it, but at the same time, it just leaves this open area of just open for abuse. It allows ambiguity for the potential to abuse something that has one intent and being used for a different one.

Leo Arzumanyan (10:33):

Those are great points. And actually one thing I wanted to bring up that we haven’t even discussed that just came to mind because actually important, so we’ve mentioned the card brand rules. We’ve mentioned state laws when it comes to surcharging, dual pricing, et cetera, but there’s also a whole nother category of state laws that also can be implicated when it comes to these matters. And that’s various states have a form of deceptive

Christopher Dryden (10:55):

Marketing. All states have a form form of deceptive.

Leo Arzumanyan (10:57):

All states have a form of deceptive marketing practices rules where if you’re not providing clear and conspicuous disclosure or whatever the verbiage is, then you are in violation of those laws, and those laws come with very heavy fines and penalties.

Christopher Dryden (11:12):

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. Then the question goes, well, how many people did they do that to? What’s 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. At that point. It’s the cardholder. And they were like, well, are you going to respond? And I’m like, no, I’m going to duck my head. I’m going to tell the restaurant, make sure you’re doing everything. I’m going to give ’em all of the marketing collateral, and I’m going to hope the past lies and doesn’t come back to haunt them. If I respond to this thing to the attorney, I’m inviting him. If I tell him I’ve remedied the problem, I’ve admitted there was a problem, so now they’re at target. I’m like, I do nothing.

Leo Arzumanyan (12:15):

And the reason I wanted to bring this up was because it just goes to show you, if you’re in this space, if you’re a merchant processor or whatever the case may be, you have so many different competing landscapes to abide by. You got the brands, you got the state rules. When it comes to surcharging, you got the deceptive. But it

Christopher Dryden (12:30):

Goes back to the reporting, right? Yeah. 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. But there are people legitimately out there looking for these violations. Probably the more that this gets into the marketplace and people see it, the plaintiff’s bar is going to start to see some of this

Leo Arzumanyan (12:58):

Stuff. I think we’re going to see an uptick just like we see it with the ADA a attorneys. They go and look for ADA a violations or because

Christopher Dryden (13:03):

There’s no written contract with an arbitration provision between the restaurant and the person ordering, it’s a problem, right? It’s a problem. 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.

Christopher Dryden (13:27):

I understand that 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 look, name anything else but a law that there’s really no gray area. You either are in compliance or not in compliance. So when Visa starts to dispense these things out with no due process, how are these not laws? I don’t understand how these don’t have the equivalence of a law

Jeremy Stock  (14:04):

With the power of visa, the virtual monopoly,

Christopher Dryden (14:07):

The power is, I don’t even want to tell you that I have a problem because I’m afraid of your reprisal. Whether that’s real or not, what’s happening?

Leo Arzumanyan (14:15):

I mean, these are real world case studies. We’re not just coming up with hypothetical scenarios that happen. People

Christopher Dryden (14:19):

Call us almost every

Leo Arzumanyan (14:20):

Single day, almost every day we’re dealing

Christopher Dryden (14:22):

With this. You would think that if they really cared about compliance with their rules, at a certain point in time, it looks like money generation. I can’t see it any other way, because the fines, if they really truly wanted compliance, they would probably have a fine regime that was policed with the reporters. And there was, again, there’s so much that’s opaque that you just can’t see through it. You don’t know what’s going on at all.

Jeremy Stock  (14:50):

It makes me think, gentlemen of Wall Street, you guys remember the 2008 housing crisis and that great book by Michael Lewis, big Short. The Big Short. 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? They get black walled.

Leo Arzumanyan (15:20):

And I would also say, let’s say they say that just do what we say. Let’s take Minnesota for example. Minnesota allows up to 5%,

Christopher Dryden (15:27):

But that’s not even possible.

Leo Arzumanyan (15:28):

That’s not even possible. So again,

Christopher Dryden (15:29):

So that’s the crazy part, right? Minnesota’s like, yeah, you getting charged up to 5%, right? So I could be compliant with the law, but I’m always going to be compliant or noncompliant with the card,

Leo Arzumanyan (15:39):

Always going to get hit with the fines. I’m violating your rules. So it just really, it comes down to, I think businesses have to come up with a sort of playbook, a strategy, and first and foremost, and that’s just really understand the rules to the extent you can.

Christopher Dryden (15:56):

Here was another one that came out, which I thought this was wrong, just straight up. I’ve asked our client to give us the merchant because it’s a restaurant group and he hasn’t come through. I don’t know if that’s because he doesn’t want to rock the boat with this 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, all operating independently on their own, all with their own EIN number, all with the same owner. Restaurant A got a fine. It was a thousand dollars. Restaurant C got a fine, it was 5,000. 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 stack the fine to the second one because it all has the same owner. That could be a silent owner. That could be somebody who isn’t part of the operations. They just happen to own them,

Leo Arzumanyan (17:09):

And I don’t think the rules even allow for that. I don’t see that

Christopher Dryden (17:11):

Anywhere in the rules.

Leo Arzumanyan (17:11):

Trust me. Where in the rules would that even

Christopher Dryden (17:13):

Be? That one came up and I went, oh, okay. Well, dude, I would definitely want that one. 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?

Leo Arzumanyan (17:30):

But what you said is important. They haven’t gone back to you. They probably don’t want to rock the bow.

Christopher Dryden (17:35):

I don’t think any merchant or any agent wants to shine a spotlight 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. They don’t know how to do it. Right.

Jeremy Stock  (17:52):

Yeah.

Leo Arzumanyan (17:54):

So I think, Chris, I guess to close things out, how would you say is the best way forward?

Christopher Dryden (18:02):

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 fill the gaps with your own operations to have 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.

Leo Arzumanyan (18:32):

Yeah. Just to add onto that. Yeah. I would say if you’re a merchant out there who’s listening, watching the podcast, your processor, whatever the case may be, an agent, 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. We’re going in, we’re updating our internal white papers on an almost monthly basis now, monthly basis. It started off quarterly and now it’s almost monthly. There’s just so many things at play, so if you’re out there, you need guidance, I’d just say reach out to us.

Christopher Dryden (19:02):

I would also say this, 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, put it on the podcast. If I verify it, I’m just 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. Chris makes up and can’t use any of it. We’ll see where things go, but all cash. Yeah.

Jeremy Stock  (19:37):

Let’s get an ADEX card

Christopher Dryden (19:38):

Quick. Exactly. Or maybe I start to actually go to Venmo. I’ve never used it, but

Jeremy Stock  (19:45):

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.

Christopher Dryden (20:07):

It is, but I’ll tell you what, man, 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. It’s stuff that we are in every single day, so yeah, it’s much easier to come to us. Could I figure out how to change my toilet? Yes. I’m going to probably call somebody to do it for me because it’s a better use of my time to not be doing that.

Leo Arzumanyan (20:32):

And just remember, the fines are so significant. You want to get compliant before you

Christopher Dryden (20:37):

Reach that. Exactly. This is one of those things where it’s

Leo Arzumanyan (20:40):

Going to be really expensive.

Christopher Dryden (20:40):

You got to come up with five grand or 25 grand, dude. It’s a bite for people, and at end of the day, if you’re going to participate in this 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 ’em out there. I mean, more than anything. Yeah. If you got a pretty big operation and you don’t want to shoulder significant costs, potentially call us. We’ll help

Leo Arzumanyan (21:14):

Because I’m of the mindset of preventing problems before they occur. To the extent you can’t prevent every problem, but if you can, why not get ahead of it before it gets out of hand?

Jeremy Stock  (21:22):

A hundred percent. 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 d Dryden, as well as Leo Arzu Manian, one of our transactional associate attorneys. It was a great one, gentlemen. We’ll see you on the next one. Bye-bye. Thanks. 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 legal law firm.com. Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.