iPhone Retail: Plastic Talks, Cash Walks

But when he took the cash from his wallet to pay for the latest must-have gadget, things took a turn for the worse.

"She looked at my money and said, 'We don't accept cash as a form of payment for the iPhone.' When I asked why, she would only say it was the store's policy that I use a credit card," Palen said.

Since he doesn't have one, Palen asked another customer if he could give him the $499 plus tax to charge it for him. Store staffers said that was against the rules, and then escorted him -- and his pocket full of bills -- from the store.

"I was so outraged. I was so humiliated. I just sat in the mall and couldn't even talk for half an hour. I was so surprised this could happen in America," Palen said. "I've never been told that U. S. currency isn't enough to buy a product."

Debts, Dues and Taxes

Legally, neither Apple nor any other private company in New York State is required to accept cash.

According to the Coinage Act of 1965, creditors must accept U. S. currency as legal tender for debts, dues and taxes. However, according to the U. S. Department of the Treasury's Web site, "Private businesses are free to develop their own policies on whether or not to accept cash unless there is a state law which says otherwise."

But, why would Apple discourage business and refuse paper money? No other wireless phone retailer requires the use of credit cards.

Then again, not every other retailer has customers waiting in line for 30 hours in advance of a phone's release like Apple has for the iPhone. When the phone was first released in June, customers happily dished out US$599 for an 8 gigabyte model, only to see the price slashed by $200 just months later.

The phone has a stylish interface complete with touch screen and virtual keyboard. It is a phone, camera, iPod, Internet browser, photo album, movie screen and personal digital assistant in one.

Apple has been tight-lipped about the reasoning behind its no-cash policy, reading the same statement over and over to dozens of media outlets.

"We require a credit, debit or gift card as payment to discourage unauthorized resellers," said Teresa Brewer, Apple spokesperson.

Unlocker Blocker

Some customers have made a quick buck buying and reselling the iPhone at a higher price, especially during the holidays when supply is down and demand is up. In addition, Apple has said that about 250,000 of the 1.4 million iPhones the company has sold so far went to "unlockers."

As the result of a five-year exclusivity deal, Apple iPhones are programmed to work exclusively on the AT&T (NYSE: T) network where wireless plans are available for between $59.99 and $119.99 per month. As soon as the phones were released, hackers worked to develop software that would divorce them from AT&T, making it possible to use the iPhone on any network.

A representative at the Walden Galleria Apple Store said the credit-only policy is in place "to make sure the iPhone is going to the person making the purchase, so that they can be informed of Apple's policies." As part of Apple's sales policy, customers who unlock and activate their iPhones outside of the mandatory two-year AT&T wireless service contract automatically void their warranty.

The policy also states that Apple can cancel or refuse any order they suspect is intended for resale, and it limits purchases to five phones per person.

Tracking Purchasers?

Bloggers, such as those for the Macintosh News Network's MacNN.com, have speculated that storing customer credit card information enables Apple to track customer purchases, and in turn, enables them to refuse sales to resellers and unlockers on record as multiple purchasers.

According to Glenn Boyet, a spokesperson for the Payment Card Industry Security Standards Council, tracking of such purchasing and activation habits does not violate customer privacy laws.

"As long as they are appropriately securing data and that 16-digit credit card number, making it unreadable so outsiders can't get to it, they are compliant with PCI standards," said Boyet. "Companies want to know who their customers are, and they are perfectly within their rights to do so."

But when asked exactly how credit or gift cards discourage such resellers, Brewer continually repeated, "I have no further comment."

Still Want My iPhone

Apple's reputation among the tech community is a strange one. It has hordes of extremely loyal fans and equally as many detractors. PCWorld.com, the online component of a popular computer and business magazine, published an article last year called "10 Things We Hate About Apple." Among them, authors Narasu Rebbapragada and Alan Stafford outlined how Apple's secretiveness and controlling "big brother" behavior have the tendency to "drive even folks who admire it positively batty."

Undeniably, Apple customers are passionate enthusiasts. But some wonder, especially those who are protective of their privacy, whether Apple can continue leveraging customer loyalty to suit its needs without hurting demand or jeopardizing its following.

For Palen, although he is no longer a fan of Apple's customer service , even this latest flap can't keep him away from the company's wildly popular products. "I still want to buy the iPhone," he said. "Unfortunately, it's the best phone on the market. Nothing else compares."