Should You Get a Discount for Paying Cash?

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When a consumer buys something with a credit card, the credit card company gets a cut of the transaction. Stores figure that cut into their pricing system, figuring that when they sell an item for $100, they don’t get all of that $100 if the purchaser uses plastic. If it’s a cash purchase, on the other hand, the store gets all of that $100.

Retailers don’t want to discourage people from using plastic—because folks tend to spend more if they’re swiping a credit card rather than whipping out tangible greenbacks—yet at the same time, stores also hate being pushed around by banks that are constantly trying to take a bigger cut of credit card transactions.

The NY Times reports on discussions to make laws limiting just how much banks are allowed to take in credit card purchases. And in the course of this discussion, the question comes up: Why shouldn’t consumers pay less if they’re using cash? That’s the way it works at many gas stations, though lots of people view this not as a cash discount, but as a fee for using a credit card—which it is, of course. The thing is: With most purchases, regardless of whether you’re using cash or plastic, you’re basically paying a jacked-up price because of the prevalence of credit cards. Shouldn’t that price come down a little if the store isn’t incurring the fee that created the jacked-up price in the first place?

From the Times:

Congress earlier this year tried to legislate away what it saw as some abuses by banks that layer on costs to consumers. Now it may take up a bill being pushed by retailers that want to pay lower fees for accepting cards.

Whether that would do anything for consumers is hard to tell, but this week 7-Eleven, the convenience store chain, descended on Capitol Hill with what it said were petitions signed by 1.6 million customers seeking such legislation.

All of this invites the basic question: If the store gets less when I use my credit card than it does when you pay cash, why should we pay the same price?

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