For decades, merchants have struggled with the burden of credit card processing fees, prompting the development of various strategies to offset these costs. Dual pricing, surcharging, and cash discount represent three distinct approaches to managing payment processing expenses, each with unique legal implications and operational requirements. While these methods may appear to achieve similar outcomes, their legal status varies significantly across states, and understanding these differences is crucial for compliance and business success.

Understanding the Three Fee Management Strategies

The payment processing industry has evolved three primary methods for merchants to address processing costs, each with distinct characteristics and legal considerations.

Dual Pricing: The Transparent Approach

Dual pricing involves displaying two prices for each product or service: a standard card price and a discounted cash price. This method provides complete transparency to customers, allowing them to make informed payment decisions before completing their purchase. The card price includes processing fees, while the cash price reflects the actual cost of goods, excluding processing expenses.

Surcharging: Adding Fees at Point of Sale

Surcharging adds a fee to credit card transactions, typically calculated as a percentage of the total purchase amount. According to federal law, merchants can impose a surcharge of up to 4% on credit card transactions, although debit card surcharging remains illegal in all 50 states [1]. This method requires customers to pay an additional fee beyond the advertised price when choosing to pay with a credit card.

Cash Discount: Incentivizing Alternative Payments

Cash discount programs offer reduced prices to customers who pay with cash, check, or other non-card payment methods. This approach frames the fee management as a benefit for cash-paying customers rather than a penalty for card users, often resulting in more positive customer perception.

To read more about this, check out our blog “Dual Pricing vs. Surcharging vs. Cash Discount: What’s the Difference?“

State-by-State Legal Landscape: Where Each Method Stands

The legal status of these fee management strategies varies dramatically across the United States, creating a complex compliance environment for merchants.

States Prohibiting Surcharging

As of 2025, surcharging remains illegal in several states [2]:

• Connecticut: Prohibits surcharging but allows cash discounts with proper disclosure
• Maine: Maintains a complete ban on credit card surcharges
• Massachusetts: Prohibits surcharging credit card transactions

States with Conditional Surcharging Laws

Several states allow surcharging with specific restrictions [2]:

• California: Bans surcharges as separate line items but permits dual pricing and all-in pricing
• Colorado: Allows credit card surcharging up to 2%
• New York, New Jersey, Nevada, South Dakota, Nebraska, and Georgia: Prohibit surcharges from exceeding the merchant’s actual processing costs
• Texas: Prohibits surcharging but allows convenience fees, service fees, and cash discounts.

Dual Pricing: Universal Legality

Unlike surcharging, dual pricing is legal in all 50 states when properly implemented. This universal acceptance makes dual pricing an attractive option for businesses operating across multiple states or seeking the most compliant approach to fee management.

The Historical Quest for Compliant High-Risk Payment Solutions

The payment processing industry has witnessed numerous attempts over the past two decades to create federally compliant solutions for high-risk industries, particularly cannabis. These efforts have consistently failed due to regulatory challenges and the evolving nature of compliance requirements.

Early Attempts: MTrac and Closed-Loop Systems

MTrac represented one of the early attempts to create a compliant payment solution for cannabis dispensaries through a closed-loop payment system. The platform aimed to provide electronic payment capabilities while avoiding traditional credit card networks. However, like many early solutions, MTrac faced regulatory scrutiny and ultimately failed to achieve widespread adoption or long-term viability [3].

The LedgerGreen Era and “Green Solutions”

LedgerGreen and similar “green solutions” emerged as companies attempted to create cannabis-specific payment processing through various technological workarounds. These solutions often involved complex compliance automation and fraud mitigation systems, but they struggled to maintain long-term regulatory approval [4]. The pattern of these solutions demonstrates the challenge of creating sustainable workarounds in a heavily regulated industry.

Modern Workaround Attempts

Recent years have seen increasingly creative attempts to circumvent traditional payment processing restrictions:

Crypto Swap Solutions: Some processors have attempted to use cryptocurrency exchanges as intermediaries, converting traditional payments to crypto and back to fiat currency. However, these solutions face regulatory uncertainty and operational complexity [5].

Rewards Points Systems: Companies like Spendr have developed systems where customers purchase rewards points that can be immediately redeemed for products, effectively creating a voucher-like system [6]. While innovative, these approaches often face scrutiny from regulators who view them as attempts to circumvent existing restrictions.

Voucher Systems: Various companies have implemented voucher-based payment systems where customers purchase vouchers with credit cards and immediately redeem them for products. These systems attempt to separate the card transaction from the cannabis purchase, but regulatory bodies often view this as a transparent workaround.

Why Payment Processing Workarounds Consistently Fail

The consistent failure of alternative payment processing solutions reveals several fundamental challenges:

Regulatory Adaptation

As new payment methods emerge, regulatory bodies and card networks typically adjust their rules to address perceived loopholes. This creates a cat-and-mouse game where innovative solutions are quickly rendered non-compliant through regulatory updates.

Banking Relationship Challenges

Most alternative payment solutions ultimately rely on traditional banking relationships, which remain subject to federal banking regulations. When banks face regulatory pressure, they often terminate relationships with alternative payment processors, causing these solutions to collapse.

Sustainability vs. Compliance

Many workaround solutions prioritize short-term functionality over long-term compliance, leading to inevitable regulatory challenges. The most successful payment processors focus on transparent, compliant solutions rather than attempting to circumvent existing regulations.

The SpectrumePay Approach: Compliance Through Transparency

At SpectrumePay, we believe that sustainable payment processing solutions must prioritize compliance and transparency over clever workarounds. Our dual pricing program represents a fully compliant approach to fee management that works within existing regulatory frameworks rather than attempting to circumvent them.

Our experience in high-risk industries has taught us that the most successful long-term strategy involves working with regulations rather than against them. By focusing on transparent and compliant solutions, such as dual pricing, we help our clients build sustainable businesses without the risk of sudden regulatory shutdowns.

Choosing the Right Strategy for Your Business

When selecting between dual pricing, surcharging, and cash discount programs, consider these factors:

Legal Compliance: Verify the legal status of each method in your operating states. Dual pricing offers the broadest legal acceptance.

Customer Perception: Consider how your customers will react to each approach. Dual pricing and cash discounts generally receive more positive customer feedback than surcharging.

Operational Complexity: Evaluate the implementation requirements for each method, including signage, POS system capabilities, and staff training needs.

Long-term Sustainability: Choose solutions that prioritize compliance and transparency over short-term cost savings through regulatory workarounds.

Ready to implement a compliant and effective fee management strategy? Contact SpectrumePay today to learn how our dual pricing program can help your business eliminate processing fees while maintaining full regulatory compliance.

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References

[1] Merchant Cost Consulting. (2025, August 29). Credit Card Surcharge Laws by State (Updated For 2025). https://merchantcostconsulting.com/lower-credit-card-processing-fees/credit-card-surcharge-laws-by-state/

[2] LawPay. (2025). Credit card surcharge laws by state explained for 2025. https://www.lawpay.com/about/blog/credit-card-surcharge-rules/

[3] SEC Archives. MTrac Revenue Distribution Agreement. https://www.sec.gov/Archives/edgar/data/1419275/000118518520000132/ex_171454.htm

[4] Ledger Green. Company Profile and Services. https://ledgergreen.com/

[5] Bank Card International Group. (2024, December 26). Crypto Payment Processing: A Game-Changer for High-Risk Businesses. https://bankcardinternationalgroup.com/crypto-payment-processing-a-game-changer-for-high-risk-businesses/

[6] Spendr. Cannabis Payments & Rewards App. https://www.spendr.com/