Gas Stations Charging Credit Users More Than Cash Users

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Last updated on July 23, 2019 Comments: 17

Clark Schinger owns a gas station. Like an increasing number of gas station owners, he is charging his customers who use credit cards a surcharge for every gas purchase. Effectively, there are two tiers of prices: one for customers who use credit cards and one for those who use cash. This is apparently not against the law in any state. Neither is it against the contract with the credit card issuers because the merchants can call this price difference a “cash discount” even though everyone knows it’s a credit surcharge.

Putting deceptive advertising aside for a moment, why do gas stations discriminate against payment method? They say they need to cover their losses. Clark has participated in a few discussions on Consumerism Commentary. Here are some of his latest thoughts:

Simply put, our hands are tied. We can’t really do anything about it… These unfortunate days, most of us, are paying out A LOT more than we are profiting… I make about $50,000/month in gross sales a month nowadays. My profit margin is about… $11,000/month. Out of these profits, I have to pay the mortgage for the new tanks that the GOVERNMENT mandated we put in… about $8,000/month. My electricity is a little over $2,000/month. Then there’s also the general bills such as phone service, fax service, maintenance costs which total to about 500/month. There’s also taxes that the business has to pay which is about 2,000/month. And I’m not even done with all of the costs…

I’m selling gas at cost to me to keep my prices low. If I keep them any higher, the consumers are just going to drive to another station that has same policies but sells the gas for a cheaper rate…

It sounds like there’s not a lot of profit in selling gasoline. If all merchants were to leave the business, that would decrease convenience and probably raise prices for everyone. Any merchant who raises his price across the board at a higher rate than the stations in the local vicinity will face fewer customers.

Merchant fees, paid by retailers to credit card companies like Visa, MasterCard, and American Express, are part of the cost of doing business. Every business that accepts credit cards must deal with merchant fees. It’s rare for other companies to charge different customers different prices, so why can’t gas stations deal with the problem?

If selling gas isn’t profitable, there’s a major flaw with the business plan. Not all gas stations ave convenience stores where products can be marked up for more profit to cover losses due to gasoline sales. Not all gas stations offer a car wash, which is another option for turning a profit.

I understand that the credit card companies charge merchants a high fee for transactions, and this fee can significantly eat into a profit margin when prices are so competitive. Gas station owners should, as a group, try to negotiate with credit card companies to lower this fee. Meanwhile, I plan to shop at gas stations that do not discriminate against payment method, particularly if they use misleading advertising.

Photo: Joe Shlabotnik

Article comments

Anonymous says:

As someone forming plans to start his own small business, I think customers complaining about being charged extra to use credit vs. cash are being a bit ignorant of certain facts.

First, this is not discrimination against the customer; it is discrimination against the payment method. I see nothing wrong with recognizing and dealing with the reality that one payment method (credit) has unavoidable fees to accept while the other (cash) does not. A customer may have a strong preference for using their credit cards rather than spending their cash, but the merchant is not responsible for that preference and should not be forced to swallow extra costs just because the customer prefers credit. Customers are always free to use another payment method or shop somewhere else. On either side, it’s nothing personal, it’s just business – and consumers need to recognize this rather than claim they’ve been personally discriminated against.

Second, accepting credit cards is a relatively expensive way to get paid. In comparing exchange fees of the six payment methods I’m considering, they line up as follows: cash, checks, and certain types of electronic bank transfers are free (assuming nothing goes wrong – like checks bouncing); Dwolla charges a flat $0.25 fee for any amount $10 or above; Bitcoin is a mere 0.6% to exchange at Mt. Gox on the most expensive tier of exchange; and last but most expensive – accepting credit/debit cards with my chosen method carries a 2.7% charge – and that even requires a physical swipe of the card without which a higher rate is applied. As a business owner I would willingly absorb the transaction fees for all methods except cards – as the others are all below 1% which to me seems a reasonable maximum. Frankly, the only reason I intend to accept cards at all is their popularity with customers – and if I come to find it feasible to abandon cards as an accepted payment method I may very well do so.

Finally, last time I checked businesses were allowed to choose with whom they will and will not do business. I will not offer my services internationally, for example, because the services require my physical presence to be performed and it would be ridiculously expensive – in money, time, and energy – to travel to international customers. Would any reasonable person accuse me of discrimination against would-be international customers were I to either not offer my services to them or charge higher amounts for international service to cover the higher costs? I doubt it. Similarly, accepting credit cards is – by comparison – significantly more expensive than many other available methods of payment. Therefore, is it so unreasonable for merchants to either prohibit this payment method or charge more to cover the additional costs? I think not.

Anonymous says:

Target does not charge different prices to the general public. But, Target only allows employees to use their employee discounts when paying by cash, check, or Target RedCard (debit or credit). You would have to choose between using your 10% discount and your beloved credit card rewards.

So, actually, a number of retailers engage in the sort of “discrimination” you despise.

I have no problem with this. If available to me, I would frequent gas stations that charged less for cash or charged less due to refusal to take credit cards. I prefer paying cash over paying with cards and would enjoy incurring a lower bill because of it.

Anonymous says:

We have to charge a fee. Now most places often will pass a cost on to you, you just never see them. Like an ICEE machine, it cost money to run, so part if the price is that cost, part if it is the cost of the syrup, the water and the cups. These costs could be individually counted, but often they are minute and can be left out. With credit/debit cards you pay a fee, it’s not shady, it’s just business. As regulated as things are, if you’re an independent station your free to do as you please. If you have a bank card or a gas station visa or master, like the BP Visa card, you get the cash price even with credit, also you get a 2cent per gallon discount. That’s just an example from one of my stations. The idea is convenience costs, like amazon, no tax, no going to the store, but a fee is passed on to you, the shipping and handling. Of course if you spend a certain amount or buy a certain item, you get that fee taken off. My point is fees are charged to you. Pay cash if you don’t like paying convenience fees.

Anonymous says:

As a gas station owner i’ve seen a few things, the trend seems to be moving towards cash / credit pricing. As an independent gas station, there are few ways to compete against grocery store and discount warehouse chains that sell gas at a deep discount or low margin if you spend a certain ammount per month at their stores.

The average independent gas station sells gas at 12-14cents per gallon gross margin. At $3/gal a 2% credit processing fee takes almost half of the gross margin. By discounting the gas 5-7 cents per gallon, you can encourage a customer to enter the store, and hopefully buy a higher margin item.

Additionally most large oil companies operate as the clearing house for credit card processing, and they often retain the payments for 4-5 days. With cash, you have the money right away which helps the cash flow of the business

Anonymous says:

It is RIDICULOUS that the new b.s the gas stations are doing is advertising prices that are CASH only without telling you, and then on an itty bitty flimsy paper sign in the dirt in miniscule print are the credit card prices. Why and how are they allowed to charge different prices? No other vendor does this unless it’s American Express because they charge so much. When will the government take over these piece of dog doo gas stations and regulate them. They are monopolies and do whatever they want which mostly includes scamming the consumer because THEY CAN and no one stops them!

Anonymous says:

Gas stations make money on food marts, car washes, etc. Also, many oil company franchise contracts specify how much, in cents (and not percentages), the station owner can charge over the “wholesale” price they pay. These markups don’t change as the price rises, while the merchant fees – typically quoted as percentages – do rise as prices go up. So, the gas station owner gets increasingly hozed by these fees as prices go up.

ARCO stations in my area don’t accept credit cards, and charge $0.45 to use debit cards.

Gas station owners generally hate high gas prices. After all, if you just dropped $75 to tank up, you probably aren’t in a mood to pick up a hot dog and a six pack in the mini-mart – where the real money is made.

Anonymous says:

if I am doing my math correctly, Clark is LOSING at least $1500 based on his numbers above and he says “And I’m not even done with all of the costs…”

So my question is: How long are you going to run a business that loses at least $1500 a month? I’d like to see all the books to understand the situation entirely, but losing money every month is not good business. I’d be getting out or cease operating I would think….pending the sale of the assets or the business…

Is the business being run as a tax writeoff or is the land appreciating fast enough to offset the loss? Just wondering…..

I see stuff on the internet like this all the time….people saying “i only bring in $5000 but my costs are $10000” and just wonder why they are in that business or continue to be…..unless that is not the actual case…..

Luke Landes says:

Gas stations are free to do what they want as long as it’s not illegal. Just about every other business I’ve encountered is able to to charge all customers the same regardless of payment method, and a few gas stations — not all — seem to be the only businesses willing to tack on a surcharge for credit card payments. I feel sorry for the owners who have a tough situation to deal with, but not sorry enough to pay more using my preferred method. Nowhere did I claim I had a “right” to use credit… it’s an option that I will take advantage of when offered.

You might want to check the definition of “discrimination.” Charging two different prices to separate groups of customers is indeed discrimination. It’s not as serious as racial or sexual discrimination, but it is an accurate term.

I won’t address your personal comments except to say that it won’t be tolerated any further.

Anonymous says:

“why do gas stations discriminate against payment method?”

Do you presuppose by this statement that all payment methods are equal? Does the gas station take livestock in trade for their gas? Do they take out of state or second hand checks? Do they even take checks (some don’t) Do they take Euros?

There is a cost to the method by which a business is paid. The advantage to credit cards is you are guaranteed to get your money. The disadvantage is it costs you 2% of your gross sales to get this advantage. However cash has the exact same advantage without the disadvantage. Its not difficult to see why cash is preferable. Now if you are operating a furniture store operation on 100% margin, the 2% is irrelevant. If you are operating a gas station which regularly sells its gas on less than 10 cents margin well, then 2% on $4 dollar gas is 80% of your profit margin before costs.

Why do gas stations still have to operate on 10 cent margins? I don’t know, but it seems many still are. Maybe that will change. But in the meantime, to suggest you have some kind of right to purchase products using a credit card and to compare it to some kind of payment discrimination, really sounds quite ignorant for a finance blogger. The only currency that any mercant is required to accept in the USA is cold hard cash. Checks can be denied, and yes, so can credit cards.

If you want to be upset about it then by all means, take your business elsewhere. But to come here and whine about it on your blog like a child …. I’m sorry, thats just really lame.

Anonymous says:

I agree with everything in your post Apex. We need more people to understand they are not entitled to free credit card services. Personally I would prefer the merchant was allowed to profit off of a service he is middlemanning and it was clearly stated on the bill how much it cost for the service. How many cardholders would value the service if they had to pay for it up front and not be allowed to get it for free at the exspense of cash customers.

Anonymous says:

Check out It is the interchange rates that most of the gas stations as well as other merchants are concerned about.

Luke Landes says:

Mike: In my experience, the credit surcharge applies only to gasoline sold.

Anonymous says:

Do these gas stations that have cash discounts for gas also offer a cash discount for the goods they sell in their store? I feel like they should be uniform in offering a cash discount on all products which they sell.

Anonymous says:

As should anyplace that accepts a form of payment other than CASH.

Actually I would prefer they did not accept anything but cash or they charged extra for other methods of payment as they increase costs to the business that should NOT be paid by the cash customer!

Anonymous says:

This is nothing new. It was common practice as recently as 15 or 20 years ago for stations to have billboards that listed cash and credit prices for all grades of gas.

The station I worked at just out of college was one of the first to match their prices up.

Anonymous says:

While it doesn’t make much sense to me for gas stations to be running at or below break-even, I don’t disagree with charging different prices for cash vs. credit. Credit costs them more and it doesn’t seem unfair for them to pass that cost on and/or try to encourage customers to use cheaper payment methods. Other merchants deal with credit cards perhaps because card users spend more. (e.g. if you had to use cash at the grocery store you might not buy as many impulse items.) Perhaps at gas stations cards might attract more buyers, depending on surrounding stations, but people are still going to buy the same amount of gas.

Despite the fact that I use a rewards credit card for most of my spending, I actually think credit card use is bad for all of us. It adds 1 to 3% overhead to everything we buy, without actually adding much to the transaction more often than not. I often get my gas at Arco which doesn’t take credit cards at all.

Anonymous says:

The gas station I frequented the most tried to do this about 2 months ago. They raised the prices for credit cards about 4 cents over cash transactions. After a few weeks, they went back to charging everyone the same. I assume they saw a decline in business as more customers went to the station down the street which all of a sudden had a distinct price advantage (they kept their prices for everyone at the price the other station declared for cash only).

I guess this is one example where voting with your wallet worked. But, it only worked because all the stations didn’t follow suit and discriminate based on method of payment.