By: Amanda Bannourah
Four months ago, the U.S. Department of the Treasury ceased production of pennies due to rising production costs. While the disappearance of pennies may seem insignificant to many, it carries substantial implications for businesses, particularly franchise systems. With little federal guidance in place, businesses are left uncertain of how to navigate this transition.
Franchisors face greater exposure due to high transaction volumes, strict brand-consistency requirements, and shared legal and reputational risk across franchise networks. Without clear rules and regulations, inconsistent approaches can lead to compliance issues, consumer confusion, or even litigation.
To offer their two cents, the U.S. Department of the Treasury has released a helpful, but non-binding, FAQ intended to guide businesses through the penny cessation. For franchisors, this guidance offers little relief: it doesn’t replace state laws, officially sanction rounding, or give businesses a guaranteed way to stay compliant across various jurisdictions.
Lawmakers introduced the bipartisan Common Cents Act, which aims to end penny production permanently and establish a uniform national rounding standard to modernize the U.S. currency system. However, the act is still pending in Congress. Until federal legislation or formal regulatory action is in place to provide clear, consistent rules at the national level, businesses are stuck in limbo.
Rather than waiting around for federal guidance, franchisors should act proactively, alongside experienced franchise counsel to develop compliant, system-wide solutions.
The nationwide penny shortage is hitting home at the checkout counter, where “keep the change” is becoming a hard promise to keep. Despite the widespread adoption of digital payment methods, cash still remains crucial for many businesses, which are now struggling with the lack of small change. These businesses are facing a complex challenge: designing consistent, compliant, and cost-effective cash policies that don’t hurt their bottom line or frustrate their customers.
For our franchise clients, we recommend adopting a consistent, systemwide “rounding down” policy to stay on the right side of cash discrimination laws. Any rounding policy must be clearly disclosed at point-of-sale, and occur only after all applicable taxes, duties and fees are applied. Additionally, rounding down can cause problems for businesses that accept EBT payments (like some QSRs and convenience stores). Federal law requires that SNAP customers cannot be treated differently from cash and credit customers, and rounding down would mean cash customers are getting a better price than SNAP customers.
While the per-transaction impact of rounding down — up to four cents per transaction — might sound like pocket change to most, the overall effect can be significant for high-volume businesses handling thousands of transactions. Ensuring POS systems accurately track and account for the incremental revenue loss associated with rounding is vital.
The penny shortage ripple effects touch many elements of franchise operations from franchise agreements and financial reporting to state consumer protection laws. Because one-size-fits-all policies do not work across jurisdictions, now more than ever, franchisors need legal guidance to work through these complexities.
At Plave Koch PLC, we take a state-by-state approach to provide our clients guidance to navigate these changes, by assessing regulatory risks, crafting compliant system-wide policies, and updating brand standards and disclosures.
While the penny shortage may seem like a minor operational hiccup, it carries significant legal implications that can create lasting consequences for businesses. Franchisors who take a thoughtful approach – and work closely with experienced franchise counsel – will be best positioned to adapt in this ever-evolving penniless marketplace.