Should retailers round up or down without pennies? States offer their 2 cents.

As pennies disappear from the American landscape, states are starting to think about how retailers should respond. (Photo illustration by Justin Sullivan/Getty Images)

As pennies disappear from the American landscape, many businesses are calling for federal guidelines on how to handle cash transactions in a cash-strapped world.

Should retailers round up or down? Should they round in favor of the customer? Or for the benefit of the company?

So far, calls for federal control have remained unanswered. Some companies are setting their own policies, but states are now starting to act amid growing uncertainty.

While the question is only about pennies per transaction, it raises critical consumer protection and legal questions that states must consider. Retailers must weigh the risk of potential lawsuits while policymakers worry about protecting the most vulnerable consumers who rely on cash for everyday purchases.

President Donald Trump moved in February eliminate the penny from U.S. wallets, citing the high cost of minting – about 3.7 cents per penny. But even before the final coin production last month, U.S. retailers and banks reported widespread penny shortages.

To provide clarity, lawmakers in New York have proposed legislation that mirrors Canada’s standard of rounding – up or down to the nearest five cents. And officials inside Georgia And Utah have issued non-binding guidelines for companies.

“States don’t have the luxury of waiting on the federal government,” said Katherine Tschopp, senior associate at government relations firm MultiState.

Making matters worse, more jurisdictions are requiring businesses to accept cash – a move aimed at protecting vulnerable consumers who may not have access to credit cards or electronic payment systems.

In November, recent York was the ninth state to introduce such a rule Tracking from MultiState. In at least eight major cities, businesses are also required to accept cash.

A bipartisan group of federal lawmakers has proposed legislation for the United States US House of Representatives And senate to require that all cash transactions be rounded to the nearest five cents, but none of the proposals made it to a floor vote.

The record-breaking government shutdown and the heated debate about health insurance subsidies have pushed the penny discussion to the sidelines, said Tschopp. She believes the federal government will likely adopt a national rounding policy at some point. In the meantime, however, she expects that other states will participate.

John T. McDonald III, a member of the New York Democratic Assembly, said he agreed with Trump’s move to end costly production of the penny. But companies are now asking for some kind of guidance, he said.

“In the absence of federal action, I think it is important that states act to provide clarity – clarity for everyone: clarity for the consumer, but also for the retailer and the state,” McDonald told Stateline.

Approaches to rounding

McDonald’s proposed legislation mirrors that of Canada Rounding policy after the abolition of the one cent coin in 2012. His bill calls for so-called symmetrical rounding of cash purchases after taxes to the nearest five cent mark. Purchases ending in one, two, six or seven cents are rounded down. And purchases worth three, four, eight or nine cents would be rounded up.

So a consumer would not get any money back on a $1.99 purchase. But a retailer would give someone a nickel for spending $1.97.

McDonald sits on the National Conference of State Legislature’s State and Local Taxation Task Force, which is conducting the research the penny question. This task force recommended symmetrical rounding as the fairest method for retailers and consumers.

McDonald noted that the NCSL group had reached a bipartisan consensus on the issue. And he said he has seen no opposition to his bill from New York businesses or consumer groups.

“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 that we can all actually agree on,” he said. “And it would be a good place if it started with good old Little Penny.”

On Wednesday, South Dakota Republican state Sen. Tim Reed called on state lawmakers to communicate with officials, retailers and the public about the issue.

As co-chair of the NCSL task force, he said businesses need guidance and consumers may need reassurance. While acknowledging concerns about “strategic pricing” – where retailers set prices to utilize rounding to their advantage – the group’s report described it as “narrow risk.”

“Everyone thinks, ‘Oh, I’m being overcharged or undercharged,'” Reed said at one Virtual NCSL event all about the penny. He said it would be good for people to know that “everything really will kind of go away in the end.”

Democratic New York State Senator James Sanders Jr. said: Cash Acceptance Act He sponsored earlier this year to ensure that people without access to smartphones or banking are not excluded from trading. This law also states that customers who pay with cash cannot be charged more than other buyers.

“Otherwise you absolutely have a two-tier system,” he said, noting that cash is “a lifeline” for working families, older adults, immigrants and miniature businesses.

Sanders said he would prefer retailers round down to the nearest nickel on cash transactions to protect consumers.

“For the big corporations, that could be a difference of hundreds of thousands of dollars if they keep rounding up,” he said. While each rounding transaction represents a loss or gain of just a few cents, Sanders said, “Multiply that by tens of thousands of people, and you have effectively increased the price of your product without there being any kind of penalty.”

Sanders said he plans to introduce legislation on the issue soon, but added that he remains open to McDonald’s current symmetrical rounding proposal. Above all, companies want some kind of guidance, he said.

“We’re not trying to cheat the business. We’re just trying not to let the business cheat us,” he said. “The people I spoke to are honest souls and just want to know what is the right thing to do in a destitute society.”

A quick change

The US Mint in Philadelphia went on strike the last cent on November 12, but pennies were already in low supply by then.

By mid-November, more than 100 of the government’s 165 coin distribution locations across the country were without pennies, they said Association of Retail Leaderswhich represents major chains including CVS, Target and 7-Eleven.

In a November Opinion poll This organization found that six national chains had more than 1,000 penny-free stores.

The association said most of its survey respondents round cash transactions to the benefit of customers – always to the nearest five cents. While it’s fair for buyers, it “costs businesses millions of dollars as small amounts add up in thousands of daily cash transactions.”

As states weigh the issue, the association is pushing for a federal response.

“We are calling on the federal government to quickly address the issue and allow uniform adjustments by retailers operating in a variety of 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 measures.

“They’re obviously concerned about this and want a federal solution,” said Christopher Phillips, a partner at the law firm Holland & Knight. “The government decided rather abruptly that it would no longer mint pennies, and this shortage of pennies spread quite quickly throughout the country.”

For retailers, the problem is both practical and legal, said Phillips, who represents payment systems companies and financial technology companies.

In many jurisdictions that require merchants to accept cash, laws expressly prohibit asking customers for more cash – and impose a fine per transaction for violations, raising the possibility of high fees. And Phillips said merchants could face class-action lawsuits over rounding policies, in which plaintiffs argue they are being charged more than advertised or are facing unfair or disingenuous business practices.

Federal regulations also prohibit retailers from charging more for food stamp purchases through the Supplemental Nutritional Assistance Program (SNAP). Cash rounding policies complicate this rule because some customers would be charged less for certain cash purchases than those using SNAP cards.

“The unintended consequences of these administrative actions and these laws and how they work together to create real problems that certainly could never have been imagined,” Phillips said.

Until now, retailers have developed their own policies.

Due to the penny shortage, East Coast supermarket chain Sheetz urged customers to switch to cashless payments or raise money to support charitable causes. It was even offered free drinks for those who are willing to redeem 100 cents.

Kwik Trip, which operates convenience stores across the Midwest, announced in October that its checkouts would open automatically round off Cash transactions to the next nickel in favor of customers.

But without a federal standard, the landscape is uneven, Phillips said. Rounding creates a winner and a loser in every cash transaction. Some companies have pushed to standardize their approach across the country, but others choose to round off only when necessary.

“Others say, ‘You know what? This is real money for us,'” he said. “‘We’re not going to give it up just for convenience.'”

Stateline reporter Kevin Hardy can be reached at khardy@stateline.org.