As in many countries, in Peru it has become commonplace for consumer’s rights protection associations to question the merchant practice of rounding cents (e.g. if your total is 6.47, you will be charged 6.50). These associations assure that commercial establishments violate consumer’s rights when retaining some cents, and giving other consumers more cents than what their bill reflects, even when the net balance is zero.
Reasons given by establishments essentially revolve around administrative efficiency: “there are not enough cent coins in order to satisfy market needs”; “its insignificant value does not justify a change operation, indeed, even consumers do not request them”; “when cents are given to them, they are rejected, and sometimes left on the counter”; “consumers never bring one cent coins to stores which generates an administrative cost of having to go to the Central Bank (because other banks do not have cents), in order to have the necessary stock”; “the black market sells the coins as scrap-iron, because its weight value is superior its nominal value”, etc.
As in all problems where opposing interests collide, there are diverse perspectives. Here are some of them:
The Constitution takes care of both interests giving them a constitutional status. On one side lie consumer’s rights. The Constitution expressly protects the right that consumers have to obtain information on goods and services.
On the other hand, the Constitution guarantees the right to free competition and free initiative regarding commercial and industrial matters.
But the right to free competition is not limited to a commercial aspect. To the contrary, free competition ultimately benefits consumers, because they, through their economic choices, decide the price set by competition.
As such, the Constitution guarantees free competition for businessmen, when allowing them to determine the quality of their products or services, and to consumers, by allowing them to make a free and informed election.
Giving change in cents is part of the determination of the quality of the service, and it is up to the provider’s discretion, as long as the consumer is informed of such matter directly or because of the force of custom.
Under constitutional rules, providers are free to decide the form and quality of their services. Having or not having change, or using the practice of rounding in order to solve the lack of coins in circulation does not infringe any laws, honest practices, and it is not immoral or a menace to public security.
On the contrary, preventing these types of practices constitutes a way of intervening in the market by creating minimum quality standards, a situation which contravenes the role that the State has in this constitutional scenario.
Perspectives on the commercial custom of rounding.
The “Dictionary of the Royal Academy of the Spanish Language”, defines custom as follows:
“1.f. Habit, usual way of acting or proceeding established by tradition or by the repetition of the same acts and it can acquire force or perception.
2.f. That of which by character or propensity it is done more commonly.
Rounding constitutes an established way of acting through repetition of the same acts at all levels, auto-services, storing, transportation, public institutions, private sector, etc.
Many times, these habits can become a source of law and they can only be questioned, and eventually invalidated, when they infringe a law.
It is important to note that it is possible that this custom is many centuries old, as it is likely that it existed even before one cent coins came into circulation.
Perspective on the efficiency of rounding.
As noted before, rounding is a mathematical rule which seeks to eliminate those amounts which lack utility, because they are insignificant or inexistent. In the cases questioned, because of the lack of one cent coins and their very low value, providers and consumers choose to round their payments.
Complaints made by consumer associations suggest that the fact that supermarkets do not have one cent coins constitutes a lack of an ideal service. In other words, these complaints seek to eliminate the commercial custom of rounding, a situation which can generate enormous deficiencies and additional costs in markets.
Indeed, according to them, every provider should have change and coins of all denominations, or else their service would be non-suitable. It is important to note that the same rule applies to every single provider.
This generates a series of questions: what happens when a supermarket runs out of change? Even worse, corner stores or market places? And public entities, if the agency in charge of consumer protection runs out of change? Not even mentioning buses or taxis that in fact would not be able to use the known phrase “exact change only”. And what about provinces? It is possible that in all cases stores would have to close if they do not go to the Central Reserve Bank and obtain change. There is no doubt that such examples, which can seem exaggerated and absurd, could really come to life if, as consumer associations suggest, it can be concluded that having change is an obligation that corresponds to the provider.
Having change is not a provider’s obligation, it is a faculty, and using alternative mechanisms in order to fulfill the lack of change, as occurs with one cent coins, is a consequence of such faculty. So, using a mechanism such as “rounding” in nominations of reduced value cannot be considered as an infringement on current laws, but only an application of a commercial custom which is perfectly valid, and has been applied for several years.
It is important to question ourselves on how much an establishment has to spend so that it has enough change in order to eliminate rounding. First of all, the costs of the acquisition of small coins, that would have to be done as well by supermarkets or small corner stores. Time invested in waiting in line at the bank. Then, the cost of transportation and storage. The space of the cashier is very small in order fill it up with small coins. The operation of having to distribute these coins would expand the average time taken for in each transaction. Lastly, the entity in charge of making coins has decided to make one cent coins in aluminum, in order to reduce its metallic value and at the same time fight the black market related to smelting.
Who pays for these additional costs? The establishment, or in the end the consumer? Without a doubt the consumer, who as always, has to pay the bill for state intervention.
Carlos Fernández-Dávila W.
Editor’s Note: As it may be apparent in this article, rounding is allowed in Peru. In Colombia the practice of rounding is prohibited by Decree 3466, issued in 1982. This shows that varying legal approaches can lead to different outcomes on a same issue in two countries that have similar legal systems.
Second Editor’s Note: As this edition goes to print, we have been advised that the local authority, INDCOPY, has determined that rounding is legal as long as the consumer is informed of such practice.