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It’s not “illegal”. It’s against their merchant agreement. No one is going to jail over it.
That said, the merchant agreement says you can’t charge more for credit card users. But it doesn’t say you can’t give a discount for using cash. That’s how my parents went around it.
Sounds like most merchants won’t even do the bare minimum of effort to research how to get around such restrictions and I’m sure they don’t lookthe other way when it’s in higher volume