Podcast - A Penny for Your Thoughts? Understanding the Legal Implications of the U.S. Penny Shortage

Kristina Merritt: Welcome to our "Legal Bites" podcast series. Today, we have an opportunity to sit down with Holland & Knight Partner Chris Phillips. My name is Kristina Merritt, and my co-host is Charles Weiss. Chris, thank you for joining and sharing your time with us.

Chris Phillips: Very happy to be here. Thanks for the opportunity.

Charles Weiss: So this is Charles Weiss. Let's jump right into today's topic. Can we start off, Chris, with you explaining what led to the administration's decision to stop minting pennies now?

Chris Phillips: Sure. It's been the case for many years — I think more than a decade — that the cost of minting pennies has exceeded their value. And during the sort of DOGE period early in the second Trump Administration, there was a lot of brainstorming on different ways to save money within the federal government. And the idea that the government lost money printing pennies, which most Americans, I think it is safe to say, don't regularly use, struck a chord within the administration, and from their perspective it was wasteful and completely unnecessary to continue minting pennies. And they made the decision in fairly short order to cease doing so.

Charles Weiss: Got it. So I remember this issue about pennies costing more to make than they are worth has been around for a very long time. And even going back to the time that they were solid copper, as opposed to, you know, for many years now they've been copper-coated zinc. And it's interesting, there's a lot of people who have very strong opinions on this from all sorts of different perspectives. We obviously are addressing the legal perspective, not the collector perspective or anything like that. So from the legal perspective, what are the challenges that businesses are going to have to deal with once the pennies are gone from circulation?

Chris Phillips: Yeah, and even now before the pennies have truly ceased circulating, about two thirds of the Federal Reserve cash distribution locations are no longer distributing pennies. And in most of those cases, they're also no longer accepting deposits of pennies. So we actually have a situation where a number of retailers or banks have too many pennies, if you know they're sort of historical penny depositors, and many retailers and banks don't have enough pennies. And so even though some people have a surplus, not just consumers, but actual businesses and banks, they are unable to put those pennies directly back into the Fed cash distribution system.

So the problems sort of come in different flavors. Because there is a shortage of pennies, when a customer is owed change and the retailer doesn't have the pennies to make exact change, they're having to come up with a fix that involves on some level rounding of transactions — and we'll talk about in a little bit the sort of different implications of that rounding — but [at] the very least, no matter how you're going to do it, the retailers are going to have to train staff at the point of sale. They in most cases will need to update their point of sale information systems technology, and as a best practice, they should post signage about exactly what the rounding policies of the retailer are. So those things are all pretty much universal regardless of what kind of goods or services retailers are selling and where they're located.

But getting into certain jurisdictions, including many of the largest cities in the country and a number of states, including but not limited to New York City, Philadelphia, Miami, Detroit, Oregon, Massachusetts, New Jersey, D.C. and many more, these places, either at the state or local sort of ordinance level, have what are called cash acceptance laws, which, first of all, require that retailers accept cash as a form of payment. In other words, you can't have a cashless business. Each of these statutes is different in their own way in terms of, you know, who has to abide by that. But as a general matter in these places, retailers have to accept cash as a form of payment. In many of these jurisdictions, but not all, retailers are also prohibited from charging cash-paying customers more than customers paying with another form of payment, such as a card. To my knowledge, no or very few retailers are rounding transactions for customers paying by card for instance. Those transactions are continuing 3 cents, you know, $100.03, that's what the card-paying customer is being charged. But if the retailer doesn't have sufficient pennies to make 3 cents in change, then there's going to be some rounding. And if the retailer in this case rounds up the transaction to $100.05 for cash-paying customers, but it remains [$100.03] for card-paying customers, then you, at least potentially, have a violation of these statutes because the cash-paying customer is paying more than the card-paying customer.

Charles Weiss: Yeah, when we were preparing for this and when I was reading up on your article about it, I saw that there were issues with SNAP, you know, the Supplemental Nutrition Assistance Program. And I was surprised because at least in New York, and I assume probably in most, if not all places, the SNAP benefits are distributed electronically — an electronic payment card, electronic EBT cards — and that would seem to avoid the issue entirely. But as you had explained it, that potentially creates an issue for food and beverage retailers who accept EBT, and this discrimination issue still, is that right?

Chris Phillips: That's correct. Charles, you're right that the standard way, I think 99-plus percent of the time, SNAP payments, WIC payments and any other sort of emergency equivalent for those things are distributed by card. When a retailer accepts payment via SNAP, those transactions run over a card processing network. It's specific to these channels, but really from the card holder's perspective and the retailer's perspective, it's as if the customer had paid with a debit card or credit card. And so unfortunately the SNAP rules promulgated by USDA are in some ways still written as if SNAP benefits were paid out in paper. And at one time they were paid out essentially as coupon books. And it creates some internal disconnects within the rules and within the real life versus on paper. 

SNAP rules prohibit differential treatment for customers paying by SNAP. Now, one way to read that is to say well, that really is intended to say that you can't charge SNAP payers more than people paying by another method. So if you're rounding all cash transactions down, then maybe you should round all SNAP transactions down. But this fall during the government shutdown, the USDA sent an alert to all their SNAP-accepting retailers that said you can't treat SNAP-paying customers better than other customers paying via another method. So it doesn't just prohibit worse treatment, it prohibits better treatment. It prohibits all differential treatment. The problem with that is we do live in a world where practically, because of this penny shortage, card-paying customers and cash-paying customers may be paying different amounts depending on the amount of the transaction. So SNAP transactions are going to be different than either cash transactions or card transactions. And how should a retailer avoid a SNAP participant, avoid violating the SNAP rules? There's literally no way to do it. And so in some cases, you know, retailers are treating all SNAP transactions like cash — in other words, rounding them as if they're rounding cash. In other cases, they have taken the position, reasonable for my perspective, but there's no guidance from USDA that SNAP transactions are card transactions. They bear every similarity possible to customers paying by card. And so as long as SNAP transactions are treated the same as transactions for customers paying with card, then there's not a violation of USDA SNAP rules. Again, there's no official guidance on that point, and trade associations have asked for it. But it's a problem with maybe a theoretical solution, but it's a really difficult circle to square.

Charles Weiss: Got it, got it. Fascinating. One would never think when we're talking about something that is seemingly as innocuous as eliminating the minting of pennies that we're going to go down the rabbit hole of potential violation of SNAP payments, given the use of cards. It's really interesting. Law of unintended consequences, that is. So I'm going to hand it back to Kristina now. Kristina?

Kristina Merritt: Thanks, Charles. Thanks, Chris. Chris, you know, I have some questions regarding what are the best practices for dealing with these rounding policies or encouraging cashless payments? What should food service operators be thinking about as they approach their operations?

Chris Phillips: Yeah, I think that what we're seeing is that food service operators need to understand that the laws are different in different places. And so while in a large swath of the country, there's no outright legal prohibition on what we would call symmetrical rounding, the rounding that we learned in elementary school where one and two round down to zero, three and four round up to five. But in other places there is at least a potential legal issue in doing that. And so it's important to know the law in the jurisdictions in which food service operators have locations. And so that's a lot of the work that we're doing for our customers at this point, is taking a list of the places where our clients have operating locations and preparing a summary of cash acceptance laws in those places. Because if you're in unincorporated King County, Washington, the laws are different than if you're in Seattle, which is also in King County, obviously, Washington. So knowing the law first is important. And then second of all, once you know the law, then you determine how to handle rounding in light of this penny shortage, but also how to disclose it to your customers so that they're not taken aback or upset if you end up giving them less change than you would have if you happen to have rounded a transaction up, and they would have gotten 3 cents in change but they get nothing in change. And also to prevent any allegations of unfair or deceptive practices. So that's sort of the second biggest piece that I think we're spending time with our clients, is helping them prepare the kind of signage disclosures — in some cases, even scripts — for the consumer-facing staff at the retail locations.

Charles Weiss: Yeah. So I'm guessing that in places like New York, for example, where we don't have sales tax on food, one easy approach would just be to stop using prices that are like $3.99. You're guaranteeing yourself that if somebody comes in and buys a quart of milk for $3.99, you're going to have this issue. And I guess the store will have to decide whether to break the psychological barrier of $4 or go down to $3.95. But at least you avoid the rounding problem in that case.

Chris Phillips: You're exactly right, [Charles]. First of all, in talking with some of our state and local tax lawyers, Charles, there's some possibility that even in places where sales tax is charged on food or whatever else a food service business happens to be selling, that legally the retailer's acting as the agent of the state or local government in collecting sales tax. And so as long as the retailer's price is a flat $4, then cash-paying customers and card-paying customers are in fact being treated equally. It happens to be that sales tax leads to a result where there's an uneven transaction amount and there's rounding, but that is not the fault/responsibility of the retailer, that lies at the state. And the fact that the retailer is acting as the state's agent and certainly not collecting this money for itself is at least potentially a defense for enforcement actions, lawsuits or anything else. Now, of course, in this case, retailers have to then make all of their prices even amounts, and deal with whatever the economic or psychological consequences of that are for themselves and for their customers. So for large retail chains that's a difficult lift. But for retailers that are super sophisticated, that have sort of digital pricing on things, then they can adjust prices as they see fit, sort of minute to minute. And then for smaller bodega-type establishments, they do pay a lot of attention to the pricing of each individual item, and their scale is such that they could change the pricing of every item to an amount that doesn't require any rounding.

Charles Weiss: Sure. So changing gears a little bit, I know that at least historically restaurants and particularly bars would not uncommonly, as an accommodation to their employees, would cash a paycheck for the employee. A lot of the folks who work in bars and restaurants may not have ready access to a bank account, might use a check-cashing store and have to pay the fee to the check-cashing business. And so if they cash the check at work and if it's an establishment that runs a large cash business and they have cash on hand, they would cash the employees' paycheck. Any issues there? You know, paychecks we know may end up with 36 cents or whatnot, depending on the wages and the deductions and all those things. They're almost never round numbers. Any issue in how establishments that accommodate their employees by cashing paychecks would have to deal with this?

Chris Phillips: Yeah, that's a good question. I hadn't thought about the issue in particular in the context of bars and restaurants. But yeah, for any retail establishment that is cashing checks, as of course, you know, many grocers do, but you know, not just grocers, other types of retailers. And to your point, businesses may [that] do for their employees. Then you face the same issue that if the paycheck is $1,000.36, and the business doesn't have the pennies to pay the exact amount, then they're faced with a question of, well, are we going to round up or down? And for banks and for other sort of licensed check-cashing establishments, there are laws that require that check cashers be paid based on the amount of the check. And these statutes don't address rounding. Now, you know, to the extent that the check casher is charging a fee to the customer, then you may be able to adjust the transaction amount so that you don't have to deal with a situation like you're talking about where an employer is cashing checks to its employees or a bank that may well be cashing checks for its customers without charging any kind of fee. You know, I think as a general rule it's going to be hard to justify paying the person cashing the check, paying them less than the face amount of the check, meaning that you're just going to have to round up. So instead of $1,000.36, you pay the individual $1,000.40.

Charles Weiss: Yeah, which is not going to be a make or break if you're already accommodating people by doing that, but sort of an example of no good deed goes unpunished.

Kristina Merritt: So thinking about policy and the future, Chris, can you tell us about the Common Cents Act and how it might help create a uniform rounding standard?

Chris Phillips: Yeah. So the Common Cents Act was a bipartisan bill promulgated in both the House and the Senate in early 2025 in light of the fact that the penny minting was going to come to an end and anticipation on the part of businesses this was going to create problems. I think what we know from the trade associations is that they did anticipate some of these problems essentially from the beginning. States and localities with anti-cash discrimination laws, SNAP differential treatment and these kind of check cashing or remittance or other situations where an establishment is paying out money to a customer or an employee.

And so the law basically included two pieces, the draft law included two pieces. One addressed pennies and nickels. At first it made explicit sort of a congressional consent that there would be no minting of pennies to the extent that there's some separation of powers question, that as to whether the executive branch can sort of unilaterally decide not to mint more pennies, this would resolve that issue. It also addressed the fact or attempted to address the fact that minting nickels is also quite expensive for the government in that it costs approximately 14 cents to mint a nickel and the metal content of the penny can't be adjusted anymore, but the metal content of the nickel apparently can be adjusted so that they will be cheaper to mint. So [that's] sort of the first piece of the statute, is sort of congressional approval for ceasing the minting of the pennies, and then addressing the idea of changing the alloy content of the nickels. The other piece of the statute, which was, you know, the part much more important to our clients, frankly, it would have preempted any state or local cash discrimination laws that would interfere with symmetrical rounding. So the Common Cents Act in its original form would have allowed symmetrical rounding as a matter of federal law, you know, for transactions that don't come to an even zero or 5 cents, and preempted any state or local laws to the contrary.

The bill obviously went into committee in both the House and the Senate, as these things do. The Senate version has been in committee, I think, since May. And I've not heard any expectation that it's coming out of committee anytime soon. The House version stayed in committee until September, and when it came out of committee, the sort of metal content and the congressional approval piece were still in the statute, but the rounding provisions had been removed from the bill so that, frankly, the retailer universe would get no satisfaction from the House version of the bill. So while we still have two competing versions of the bill out there, at least one of them really no longer provides any relief from these issues and there seems to be sort of a growing sense of pessimism that there's going to be a federal legislative fix for this.

There have been requests from trade associations for guidance from Treasury and other regulators. That guidance cannot by itself override state and local law, but it might be helpful. There's also been requests from trade associations to continue the circulation of pennies — in other words, to begin accepting deposits of pennies again in a way that might alleviate the distribution shortages. But right now, there's not a clear path that's going to lead to a simple solution for our clients.

Kristina Merritt: Thanks, Chris. Your guidance right now is very valuable to our listeners. With that, we'll wrap things up for this episode of our podcast. If any of our listeners have ideas for an episode or if you might want to be a guest, we would love to hear from you.

Charles Weiss: Excellent. Just don't ask us to give you a penny for your thoughts.

Kristina Merritt: Our guest today has been Holland & Knight Partner Chris Phillips. Thank you.