Penny Shortage Sparks Confusion For Cash Transactions Nationwide

The penny is no more. The last penny in America was minted November 12th, but stores were facing a penny shortage long before then.

OK, now what?

President Trump issued the order to stop minting the penny; it costs the U.S. Treasury about 3.7 cents to make one. Of course, the federal government stopped there. No answer to what happens when I pay cash for a $1.99 purchase. That leaves businesses and states to mix together a hodge-podge of policies to make change.

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Even before the last penny was minted, they were in short supply. In November, the Retail Industry Leaders Association reported that more than 100 of the 165 coin distribution sites in the nation were without pennies. Another survey found six national retailers with more than 1,000 stores each that didn’t have any pennies in the vault.

That’s great. The U.S. Treasury stops losing money minting pennies, and stores aren’t scrambling to find them. But, most transactions don’t end on an even number. What happens when I pay cash?

The U.S. Treasury has not issued any guidance on what to do with a $1.98 cash purchase.

Some retailers report they are rounding down to the nearest nickel. That benefits the customer, but those micro transactions lead to losses of millions of dollars per year to businesses. An already thin margin could develop into a loss based on a few pennies per transaction.

New York lawmakers have provided guidance to that state’s businesses that follow what Canada has been doing for a while. The concept, called symmetrical rounding, rounds purchases ending in one, two, six and seven down to the nearest nickel, while increasing purchases ending in three, four, eight and nine up to the next nickel.

That means about half the time the store will charge MORE than the total price for your purchase. Most customers will break even over time, but on an individual basis, the business will pick up a few extra cents on about half the purchases. The National Conference of State Legislature’s State and Local Taxation Task Force claims that is the fairest way to answer the question. McDonnald’s claims they will follow that procedure.

Other businesses have other ideas.

An East-Coast convenience store chain called “Sheetz” is asking customers to use cashless payment or round up the purchase with the extra few cents going to charity. They’re not going to round down any purchase or capitalize on the few extra cents.

Locally, Kwik Trip has announced they’ll round down every purchase to the benefit of customers.

This isn’t a problem when you pay with a debit or credit card.

There are several states and municipalities with laws on the books that force stores to accept cash as a purchase option. Many stores, especially small businesses, prefer cash due to high fees on credit card transactions.

That’s where things get messy.

There are legal challenges to consider. Why should a cash buyer pay more (or less) than a buyer who uses a credit or debit card? In many states, that’s against the law. If someone using an assistance program (like SNAP) is charged an extra two pennies, is that state or federal fraud? What about state or federal agencies making retail purchases, like a school? Will the year-end accounting leave an entry titled “rounding errors”. The question of a few cents could lead to federal charges or massive class-action lawsuits.

I can hear the ads now! “If you paid cash for your cheeseburger, you may be entitled to financial compensation”.

Plus, how will we explain making change to our kids? Under symmetrical rounding, if I pay two dollars cash for $1.98 purchase, I don’t get any money back, but I get a nickel back if the total is $1.97.

Stores could adjust their prices to make everything come out to a nickel, but adding tax or removing sales tax for exempt buyers is another hassle that’s not needed in the checkout line.

Of course, Congress could order retail to round down and take the error out of the tax portion of the transaction. That way the business collects the full price, and the state takes the hit of a few pennies. Sure, they’re all business friendly until there’s money on the line.

The solution seems easy. Find another penny.

The United States Government needs to find something we can use as legal tender that costs less than $0.01 to mint. It might be a different shape or a different color, but it would solve a laundry list of problems. That decision would require congressional approval, and we all know congress exists to create problems, not solve them.

Until then, your change due will vary from store to store and penny to penny.