As pennies disappear from the American landscape, states are starting to wonder how retailers should respond. (Photo: Justin Sullivan/Getty Images)
As pennies disappear from the American landscape, many businesses are calling for federal guidance on how to handle cash transactions in a pennyless world.
Should retailers round up or down? Should they round them in favor of the customer? Or maybe to the benefit of business?
So far, calls for federal leadership have gone unanswered. Some companies are setting their own rules, but countries are stepping up in the face of growing uncertainty.
While the question only involves a few cents per transaction, it raises essential consumer protection and legal issues for states to consider. Retailers must weigh the risk of potential lawsuits, while policymakers worry about protecting the most vulnerable consumers who pay cash for their everyday purchases.
President Donald Trump moved to eliminate penny from American pocketbooks, citing the high cost of minting them – about 3.7 cents per penny. But even before the coin’s final production last month, U.S. retailers and banks reported widespread shortages of pennies.
To provide clarity, lawmakers in New York have proposed legislation to mirror Canadian rounding standards – either up or down to the nearest five cents. And officials in Georgia AND Utah issued non-binding guidelines for businesses.
“States don’t have the luxury of waiting on the federal government,” said Katherine Tschopp, senior associate at government relations firm MultiState.
Complicating matters is the growing number of jurisdictions requiring businesses to accept cash – a move intended to protect vulnerable consumers who may not have access to credit cards or electronic payment systems.
in November New York became the ninth state to add such a rule, according to tracking with MultiState. At least eight major cities also require businesses to accept cash.
In the absence of action at the federal level, I believe it is essential that states act to ensure transparency – transparency for all: transparency for the consumer as well as the seller and the state.
– New York Democratic Assemblyman John T. McDonald III
A bipartisan group of federal lawmakers has proposed legislation regarding US Chamber AND Senate require all cash transactions to be rounded to the nearest five cents, but no proposal received a majority vote.
Tschopp said the record federal government shutdown and the heated debate over health insurance subsidies have pushed the penny debate to the side. He believes the federal government will likely ultimately set a national income rounding policy. But in the meantime, he expects more states to speak out.
New York Democratic Assemblyman John T. McDonald III said he agreed with Trump’s move to phase out costly penny production. But now companies are asking for some guidance, he said.
“In the absence of action at the federal level, I think it’s important that states act to ensure transparency – transparency for all: transparency for the consumer as well as the retailer and the state,” McDonald told Stateline.
Rounding approaches
McDonald’s proposed regulations mirror Canadian legislation rounding policy following the elimination of the one-cent coin in 2012. His bill calls for so-called symmetric rounding of after-tax cash purchases to the nearest nickel. Purchases ending in one, two, six or seven cents will be rounded down. Purchases ending in three, four, eight or nine cents will be rounded up.
Therefore, the consumer will not receive a refund for the $1.99 purchase. But the retailer would give a nickel to someone who spent $1.97.
McDonald serves on the State and Local Tax Task Force of the National Conference of State Legislatures, which is investigating a matter of pennies. This task force recommended symmetrical rounding as the fairest method for sellers and consumers.
McDonald noted that the NCSL group has reached bipartisan consensus on the issue. He also said he has not encountered opposition from New York businesses or consumer groups to his bill.
“In this day and age, when we seem to be having a lot of heated conversations about other topics, it would be nice to find something we could all agree on,” he said. “And it would be a good idea to start with the good old penny.”
On Wednesday, South Dakota Republican Sen. Tim Reed urged state lawmakers to begin communicating with agencies, retailers and the public on the issue.
As co-chair of the NCSL task force, he said companies need guidance and consumers may need reassurance. While acknowledging there are concerns about “strategic pricing,” in which retailers set prices to exploit rounding to their advantage, the group’s report characterized it as “restricted risk.”
“Everybody thinks, ‘Oh, I’m going to get too much or too little,’” Reed said during a news conference. NCSL Virtual Penny Event. He said it would be good for people to know that “it really will all wash away eventually.”
New York State Senator James Sanders Jr. said: Act on accepting cash sponsored earlier this year ensures that people without access to smartphones or banking are not excluded from trading. This law also states that customers paying in cash cannot be charged more than other buyers.
“Otherwise we have a completely two-tier system,” he said, noting that cash is a “lifesaver” for working families, the elderly, immigrants and miniature businesses.
Sanders said he would prefer that retailers round cash transactions down to the nearest penny to protect consumers.
“For large corporations, it can be a difference of hundreds of thousands of dollars if they are constantly rounding profits,” he said. Although each rounded transaction represents a loss or gain of just a few cents, Sanders said, “multiply that by tens of thousands of people and you’ve effectively raised the price of your product without any sanctions.”
Sanders said he plans to introduce legislation on the issue soon, but added he remains open to McDonald’s current proposal for symmetrical rounding. Above all else, he said, companies want some kind of guidance.
“We’re not trying to cheat the business. We’re just trying not to be cheated by the business,” he said. “The people I talk to are honest souls and they just want to know what needs to be done in a destitute society.”
Quick change
The US Mint in Philadelphia struck last penny on November 12, but pennies were already few.
As of mid-November, more than 100 of the 165 government coin distribution points across the country were out of pennies, according to data. Association of Retail Industry Leaderswhich represents major chains including CVS, Target and 7-Eleven.
In November questionnaire of its members, this organization found that six national chains had more than 1,000 cash-strapped stores.
The association found that most survey respondents rounded cash transactions for the benefit of customers – always down to the nearest five cents. While this is fair to buyers, “it costs companies millions of dollars because small amounts add up to thousands of daily cash transactions.”
While states weigh the issue, the association is pushing for a federal response.
“We are calling on the federal government to quickly resolve this issue to allow for uniform adjustments for retailers operating in multiple states,” Austen Jensen, the organization’s senior executive vice president of public affairs, said in a statement to Stateline.
Other groups, including the American Bankers Association, have also done so pushed for federal action.
“They are clearly concerned about this and want a federal solution,” said Christopher Phillips, a partner at the law firm Holland & Knight. “The government decided quite suddenly that it would no longer mint pennies, and penny shortages spread throughout the country quite quickly.”
For retailers, the issue is both practical and legal, said Phillips, who represents payment systems and financial technology companies.
In many jurisdictions that require merchants to accept cash, laws specifically prohibit charging higher fees to cash customers – and for violations impose a fine on a per-transaction basis, increasing the potential for high fees. Phillips said merchants could face class action lawsuits over price rounding policies in which plaintiffs allege they charge more than advertised or face unfair or misleading business practices.
Federal regulations also prohibit retailers from charging more for purchases made with food stamps through the Supplemental Nutrition Assistance Program (SNAP). Cash rounding rules complicate this rule because some customers would be charged less for certain cash purchases than customers using SNAP cards.
“The unintended consequences of these administrative actions and these regulations and the way they come together to create real problems that were certainly never anticipated,” Phillips said.
So far, sellers have developed their own rules.
Amid a penny shortage, East Coast convenience store chain Sheetz has asked customers to go cashless or round up to support charitable causes. It even offered free drinks for those who want to pay 100 cents.
Kwik Trip, which operates convenience stores in the Midwest, announced in October that its records would be kept automatically round down cash transactions down to the cent for customers.
But without federal standards, the landscape is patchy, Phillips said. Rounding creates a winner and a loser in every cash transaction. Some companies insist on standardizing their practice across the country, but others will choose to round down only when necessary.
“Other people say, ‘You know what? This is real money for us,'” he said. “We won’t give it up just for convenience.”
Stateline reporter Kevin Hardy can be reached at: khardy@stateline.org.
This story was originally produced by state linewhich is part of States Newsroom, a nonprofit news network that includes the Ohio Capital Journal and is supported by grants and a coalition of donors as a 501c(3) public charity.
