You soon may save by paying cash

If you prefer toting cash to plastic credit cards, some sizable bargains could be coming your way. But there may not be many, and you'll probably have to hunt for them.

A bill aimed at encouraging merchants to serve up larger discounts to those buying with cash instead of credit cards is expected to be signed into law and take effect this week.

But, before you start stashing those extra greenbacks in your wallet in anticipation of big savings, be advised that any cash-discount offers by merchants are strictly voluntary. The new law only sweetens the incentive somewhat by trimming some red tape.

Every time a customer uses a credit card, the retailer must pay a fee averaging 2 to 3 percent to the company issuing the card. The fee goes as high as 5 percent for smaller stores and restaurants. Though many argue that cash, too, carries added costs such as the need for more security, the expense of the card fee to the merchant -- and ultimately to the consumer -- is an estimated $1 .5 to $3 billion a year.

Consumer advocates long have argued that a two-tier pricing systems is the fair way to bridge the cash-credit gap. Some of them reason that whether a discount for cash or a surcharge for credit cards is offered is largely a matter of semantics.

But credit card issuers vehemently oppose every suggestion of a card surcharge. They argue it is patently unfair and penalizes those who carry cards for convenience and are apt to buy more expensive items so ong as they don't have to pay for them immediately. Accordingly, a ban on card surcharges, which was part of the original 1974 legislation paving the way to cash discounts of up to 5 percent (without involving merchants in complex truth-in-lending regulations), is renewed for another three years as part of the new law. The Federal Reserve Board, the Federal Trade Commission, and groups such as the Consumer Federation of America and Consumers Union, had argued the case for a card surcharge.

Few merchants rushed to offer a cash discount under the original legislation. Consumer advocates hope that the new law, by removing the 5 percent ceiling and easing other regulatory restrictions such as having to post notice of the policy on every cash register and at every entrance, will encourage more merchants to take the plunge. As one House Banking Committee staffer says: "We wanted to give the concept a real chance by deregulating it."

"The changes will make it a little easier to offer cash discounts -- there's a little more encouragement there," notes Ellen Broadman, an attorney with Consumers Union. "But it's hard to say what will happen."

Under the new law merchants must still disclose their discount policy clearly and conspicuously, but the details of where and how are up to them. Some credit experts are dubious that such easing of regulations and the lifting of the 5 percent cap will really spur that many more merchants to offer a discount for dollars.

"I honestly think most merchants want to keep everything they do as simple as possible," says Richard D'Agostino, senior vice-president of Philadelphia's Girard Bank. "And I don't think there's going to be any motivation to go beyond the 5 percent just because the law says they can. . . . I think they'd be more inclined to charge more to those using credit cards [if the law permitted it]."

"There's no great incentive for the retailer to offer a discount," agrees Dr. Robert W. Johnson, director of the Credit Research Center at Purdue University. "He may avoid the 2 to 3 percent fee, but by giving away 5 percent [or more] he's not going to be making any money. Unless people really switch from using credit to cash, the merchants is giving something away. The only way to have it work is to jack up the prices and that's difficult in this competitive environment."

And credit-card issuers, who largely supported the bill mainly for its continuation of the ban on card surcharges, obviously see the measure as little or no threat to their business.

"The idea was never that well received before, and I doubt that merchants are going to go for it now," says Nancy Muller, a spokesman for American Express.