The final penny was minted on November 23, after 230 years in production. In February, President Trump ordered the Treasury to stop minting pennies. The reason is sound; it cost more than a penny to make them and minting 4.5 billion pennies a year was costing around $180,000,000. Not hard to figure that if it takes 3.69 cents to make 1 penny, that is not a good long-term option. Just a few weeks ago the Treasury minted its last pennies, including 5 special ones that will likely be sought after collectors’ items. It is estimated there are 300 billion pennies in circulation with millions stuck in jars, cans, pockets of pants last worn 10 years ago, etc. While there was some advance notice, many businesses were caught off guard on what the appropriate procedure would be if they needed to make change in amounts that end in a 1, 2, 3, 4, 6, 7, 8 or 9. What does this mean for banks? There are multiple issues raised that banks need to carefully consider and then formulate sensible policies that adhere to their regulatory responsibilities and customer service expectations. The major issues are: How to make in-person change: Making change at the teller or drive through How automated systems will make change How to assist their business customer in making change What are the regulatory issues surrounding receiving and delivering pennies? With any in-person transaction that involves cash, what will the bank do about delivering funds to a customer where pennies would be required? A customer is cashing a check for $235.32. Is the bank required to have the 2 pennies needed to satisfy this request? The round up / round down issue is not going to work (we’ll talk about this shortly regarding how businesses will be making change …); banks are not in the “rounding” business. For an account holder, there are a couple of options. The teller could give the customer $235.30 and deposit .02 in to their account, which would balance nicely. Could the bank require the customer to deposit the entire $235.32 into their account and then make a cash withdrawal in an amount that does not require pennies? I am not aware of any rule or reg preventing this. What about a non-customer who comes to the bank with a $235.32 check drawn on the bank? Now there is no account into which the extra $.02 can be deposited. Again, it’s a bank, there is no option to “round” this transaction. Can the bank require the non-customer to have pennies available to make the cash delivered to the customer result in increments of $.05? Possibly. But that doesn’t seem to represent a very “customer service friendly” approach. Yet again, in this example, the receiver of cash is not a customer. I suggest a MICR encoded “Check” in the amounts ranging from .01 through .09, except .05. Counter check blanks cost between .01 and .03 depending on volume and you have to encode them, but this seems like a cost effective and reasonable alternative if there is no account available to deposit the odd penny amounts. Many banks have automated systems that will cash checks and deliver all denominations of coins and bills. These machines have been widely used in recent times as banks upgraded older ATMs and are prevalent in drive through locations and even in some bank lobbies. Without pennies, how will they be programed to address the 1, 2, 3, 4, 6, 7, 8 or 9 problem? The ability to deposit into an existing account would be possible, but I doubt that these machines are currently programmed to perform that type of split transaction. What does the machine do if it is called on to produce $235.32 but has no pennies in its hopper? I would certainly take the time to figure this out before it happens to a customer. Make sure you have inquiries in to every vendor that you have that powers these machines. Banks regularly provide coin and currency transactions for their business customers. Some businesses are heavy users of coin, others literally none. An accounting firm does not have to worry about cash and coin transactions but any retail store must. So, what are the options for these retail-oriented businesses regarding the lack of pennies? The prevailing wisdom is that until all products (and the various taxes imposed on sales) are reset to ensure that all transactions come out to a .05 or .00 total, they will have to round up or round down. This is already occurring in some areas where the use of cash and the lack of pennies are already prevalent. The law of averages says that over a period of time it should all equal out. I’m guessing that most people would not be put off by paying a couple of pennies more on the total of their purchase if paying in cash. Some businesses may try to eliminate cash as a payment method but that runs afoul of numerous state and federal regulations regarding restricting the acceptance of cash for payments (as a reminder, you might want to check out the legend at the top of the front of every Federal Reserve Note …). Not to mention that as of this writing, 10 states and numerous municipalities have prohibited companies from rounding what a customer owes up. It is already a fact that many retailers are finding it very difficult to get pennies. The pennies that are available in the banking system seem to be going to large nationwide retailers, leaving the main street retailers to scrounge for pennies wherever they can get them. And remember, even if a retailer adjusted prices to guaranty all totals would be divisible by .05, the calculation of taxes, in some cases, more than one tax will still leave most transactions out of sync from .05 and .00 totals. The number of entities both public and private that need to get coordinated to make this problem go away is a significantly huge number of players. Thousands of companies that perform accounting and point of sale registers will need to be re-programmed, making this an effort not dissimilar to the angst over the change from calendar year 1999 to 2000. Consider how much time and effort went into that change. Tasking all of these entities to get aligned on pennies in a couple of months seems wildly optimistic. By the way, way back in 1989, legislation was enacted to specify how rounding would be handled if pennies were not available. It was surprisingly straightforward for congress; if the resulting amount ended in .01 or.02, you round down to .00. If the amount was .06 or .07, you would round down to .05. Amounts ending in .03, .04, .08 and .09 would be rounded up. Here is the link if you wanted to read the text of that legislation – https://www.congress.gov/bill/101st-congress/house-bill/3761/text. Yet, this legislation didn’t mandate that all banks handle the penny issue the same way. The fact that multiple banks are handling the situation in different ways compounds the problem as individuals and businesses have no consistent message around which they could effectively plan. There will be some odd stories emerging from all of this. We could see a whole new crime occurring: people desperate for pennies to round up their transaction so they can cash a check at the store or bank or sneaking into convenience stores to steal from the “Need a Penny, Take a Penny” receptacle at or near the checkouts. Interestingly, I saw an instructional document from a core vendor that explained how automated teller machines could be programmed to round up or round down. The offset to the adjusted pennies is a G/L account. If the bank takes a check for 235.23 and pays out 235.20, it then has .03 of what, income … to the balancing G/L account? Does the bank create an electronic version of “Take a Penny, Leave a Penny” G/L account? There are people already advertising their pennies on eBay and other resell sites. Could there be a marketing campaign where the bank itself advertises a penny roundup, encouraging customers to find all those discarded pennies or bring in that huge jar of pennies to the bank, especially until the entire world of transactions adjusts to only having transactions end in .05 or .00? On a recent call with the Louisiana Bankers Association, ideas for how banks should address cashing checks where pennies would be needed, included 1) Offer to open account, 2) Put on a gift card or 3) Donate the funds to a foundation. Only that last option even makes any sense. Open an account for .02?? Put .02 on a gift card that costs $1.50 (or more)? Can you still get pennies? Sure, there is an estimated 250 billion of them out in circulation. Of course, circulation is a term meaning they are not in the Treasury’s vault. As mentioned before, a significant number of pennies are lying dormant, secured away, often in unknown, unseen places. The key element for banks is to get out ahead of this from a communication / marketing standpoint. Make sure all customers can see and understand the issue is the lack of available pennies from the Treasury, not an issue that the bank somehow failed to plan appropriately for. There is a great opportunity to engage with your community. Organize a penny drive to get pennies out of jars and into the bank vault. Have a contest and make donations to charity for customers who make large deposits of pennies into their bank accounts. Utilize social media effectively. Work with your customers who take cash for payment to give preference to patrons who will pay a $5.00 entry fee in pennies (think local high school sporting events …). Not to be an alarmist, but could the demise of the nickel be one day in our future? Did you know it costs $0.13 cents to produce?