I have been appointed by the League of Minnesota Cities to represent the organization on a state-wide intergovernmental task force that is studying the issues related to state and local governments accepting credit and debit card payments for services. The task force was established by the State Legislature during the 2006 legislative session to study the issue. There are representatives on the task force from many different state departments, the Attorney General’s Office, and County governments. As the representative on the task force from the League of Minnesota Cities, it’s my duty to represent the interests of cities – big & small, rural, suburban, urban, metro & non-metro, etc.
The mission of the task force is to study the issue and submit a report to the State Legislature by January 1, 2007. The task force met for the first time today. We met in St. Paul at the Bremer Bank Building. There are about a dozen people on the task force and we think we’ll be able to wrap up our work in 3-4 meetings.
State, county and city governments already accept credit and debit card payments for many services. The issue is not whether government should or should not accept credit and debit card payments. The issues revolve more around the convenience fee charged by the credit card companies for the ability to pay government bills with their cards. You may not know that you pay this fee to the credit car company for using your card, but when you make an on line purchase you pay a 2%-4% convenience fee. If you drive to the store and buy the same exact item in person, the vendor pays the 2%-4% convenience fee.
The rules regarding who pays the convenience fee are set not by the government, but by the credit card companies: VISA, MasterCard, Discover and American Express. Of these four, VISA is by far the market leader, and the leader in enforcing its rules. While vendors that accept VISA payments would like to shift the burden of paying the convenience fee back to their customers, VISA will never allow their credit card to be disadvantaged to check or cash payments. That’s why they insist that the convenience fee be invisible to the consumer at the counter making an actual in-person purchase. I don’t suspect this practice will change anytime soon.
This rule about who pays the convenience fee makes paying some government fees problematic. For example, when you pay your property taxes to the County, the County accepts your payment and then distributes your lump sum payment back to the other local governments, such as cities and schools. We do it this way so that it is easier for the taxpayer to pay his or her taxes. One stop shop. That sort of thing. If you were to pay your property taxes on line with a credit card, which you cannot do in most counties in Minnesota, you would pay the convenience fee for the ability to pay on line. If, however, you were to pay your taxes in person at the counter in the courthouse, the County would have to pay the convenience fee and then figure out how to distribute the lump sum to the other taxing bodies.
Should the County “eat” the loss created by paying the convenience fee or should each governmental taxing body incur a pro rata share of the convenience fee? What happens to cities, counties, and schools if their property tax collections are short the 2%-4% they have to give up to allow people to pay with credit cards? Is there a way that we could get the credit card companies to make a different deal with state and local governments on the payment protocol for convenience fees? These are all the questions that our task force is going to wrangle with over the next few months.
It’s an interesting issue. I’m not doing it full justice here with this brief explanation. I’ll keep you updated on our progress.
