BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2003-2004 Regular Session
SB 1801 S
Senator Bowen B
As Amended April 1, 2004
Hearing Date: April 13, 2004 1
Gov. Code, Code of Civ. Pro., and other Codes 8
MTY:rm 0
1
SUBJECT
Public Agencies: Credit Card Processing Fees
DESCRIPTION
This bill would prohibit state and local agencies from
imposing a special fee for credit card or debit card
payments.
BACKGROUND
Under existing law, retailers are prohibited from adding a
surcharge to credit card transactions. Public agencies,
however, are not subject to this restriction. This bill
seeks to extend the existing prohibition to public
agencies.
CHANGES TO EXISTING LAW
Existing law generally requires state agencies to accept
credit card payment for various services, and also
authorizes the imposition of a fee for the use of a credit
card. The amount of the fee may not exceed the costs
incurred by the agency in providing for credit card
payment. [State Payment Card Act, Government Code Sec.
6160 et seq., and various other provisions of law specific
to certain agencies.]
Existing law provides that local governmental entities may,
but are not required to, accept credit cards for payment of
various fees and charges. Existing law authorizes these
(more)
SB 1801 (Bowen)
Page 2
entities to charge a fee to cover the costs of accepting
payment by credit card. [Gov. Code Sec. 6159.]
Existing law provides that no retailer may impose a
surcharge on a cardholder who elects to use a credit card
in lieu of payment by other means. The retailer may,
however, offer discounts for the purpose of encouraging
payment by cash. [Civil Code Sec. 1748.1]
This bill would delete the existing authorization for
credit card fees by public agencies, and explicitly
prohibit public agencies from charging a fee for the use of
a credit card.
This bill would also make various conforming changes to
other code sections which authorize credit card fees.
This bill would become operative on April 30, 2005.
COMMENT
1. Need for the bill
The author's office writes that:
Credit card companies charge businesses and
government agencies that accept credit card
payments a fee for each transaction. The fee
typically ranges from 2% to 3% of the amount
charged to the credit card by the customer. While
retailers are prohibited under state law from
directly passing along that fee in the form of a
surcharge to their customers, state agencies are
specifically permitted under California law to
pass along the surcharge. That leaves people who
decide to pay with a credit card - whether it's
out of convenience or necessity - with a higher
bill to pay than people who choose to write a
check or visit a government office and pay cash .
. .
While it's clear [that] in person, over the
counter service is the most expensive way for
government to operate, government agencies
essentially discourage people from using the
SB 1801 (Bowen)
Page 3
Internet and automated phone systems by charging
the extra fee on credit card payments. People who
pay online with a credit card don't mail a check,
which needs to be physically received, processed,
deposited, and paid out - all while the agency
waits and loses interest earnings that would
accrue if the money were on the agency's bank
account sooner. Most importantly, people who pay
online and by phone aren't going to walk into a
government office to be served in person. Simply
put, why should people pay more to save government
money?
According to a report by the Legislative Analyst's
office, the most frequent uses of credit cards in
transactions with the state government are to renew a
vehicle or professional license, to pay income taxes, and
to reserve campsites in state parks. According to the
author's office, examples of current credit card fees
include:
a four dollar fee to renew a vehicle registration
using a credit card;
a one dollar fee to renew certain professional
licenses with the Department of Consumer Affairs; and
a 2.5% percent fee charged to the taxpayer by the
vendor who provides the Board of Equalization and
Franchise Tax Board with credit card payment
transactions.
2. Bill raises significant fiscal implications which will
be addressed in Appropriations Committee; potential
impact on state courts
The primary concerns surrounding this bill would appear
to be its potential impact on the state's finances, and
these concerns will be addressed in the Appropriations
Committee. However, this Committee's jurisdiction
extends to the operations of the state courts, which
would also be affected by the bill.
Preliminary information gathered by the Judicial Council
shows that there is no consistent statewide practice by
the courts with regard to credit card fees. Of seven
courts that have responded to Judicial Council's inquiry,
SB 1801 (Bowen)
Page 4
two courts charge a credit card transaction fee
(Riverside County charges a two dollar fee and Sacramento
County's traffic division contracts with an outside
vendor who charges $12 per credit card transaction).
Three of the seven courts (Los Angeles, San Diego, and
Orange) do not charge a fee to customers, but do deduct a
fee prior to transmitting funds to the receiving agency.
Two courts (Ventura and Shasta) simply absorb the credit
card transaction fees themselves.
According to estimates provided by the courts to Judicial
Council, a ban on credit card transaction fees would cost
the Sacramento court $190,000 per year and the Riverside
court $210,000 per year. The Council writes that:
The Judicial Council opposes SB 1801 because the
bill will have a significant fiscal and
operational impact on the courts and may restrict
the ability of the Administrative Office of the
Courts (AOC) to negotiate a favorable contract for
credit card payments in the future.
The author's office argues that in the long term,
encouraging credit card use will actually save the courts
(and other agencies) money by allowing for streamlined
and more efficient operations. The author's office also
notes that the state and federal governments are engaged
in ongoing "e-Government" efforts to make themselves more
consumer-friendly, and argues that this goal is
undermined by fees which discourage credit card
transactions.
3. Bill could result in reduction of consumer choice
As noted above, state agencies are required to accept
credit cards, and are already prohibited from charging a
special fee for credit card transactions. Local
governmental entities, however, are not required to
accept credit cards. The California State Association of
Counties (CSAC) writes that:
In these trying fiscal times, California counties
SB 1801 (Bowen)
Page 5
simply cannot afford to absorb the additional
costs imposed by credit card companies and, in
many cases, would be forced to end the practice of
allowing payments . . . by credit card.
This concern is echoed by the Judicial Council,
which writes that:
[T]he use of credit cards is an effective way to
collect fees and fines that might otherwise be
paid through installment plan. To the extent that
credit card payment fees [are] made a cost of the
court, this payment option may not be offered and
overall collections could decrease.
Committee staff sees no reason to disbelieve these
assertions that some counties would eliminate credit card
payment options. As a result, the bill might result in a
reduction of consumer choice in payment options. On the
other hand, the Legislature has already prohibited
special fees by private retailers, and the same policy
justifications behind that prohibition (which has been in
place since the mid 1980's) would seem to apply to this
bill as well.
4. Operative date intended to accommodate existing state
contracts
The bill would become operative on April 30, 2005. The
author has chosen this date because that is the date the
state's existing contract with credit card vendors
expires. Without this later operative date, the bill
would force the state to breach its contracts.
The author's staff has informed Committee staff that a
technical amendment is needed to move the operative date
to May 1, 2005, so that the last day of the state's
contract does not conflict with the bill.
SHOULD THE BILL BE AMENDED TO PROVIDE FOR AN OPERATIVE
DATE OF MAY 1, 2005?
SB 1801 (Bowen)
Page 6
5. Subsequent changes contemplated as author's office
gathers more information on credit card practices of
various agencies
It is the author's intent that the bill ultimately cover
all special fees levied by agencies, whether they are
levied directly by the agency or by a contractor that
provides credit card services to the agency. In
discussions with interested parties, the author's office
has learned that the current bill language may contain
technical loopholes that would not accomplish this goal.
As a result, the author's office has indicated that
subsequent changes will be needed in Appropriations
Committee to ensure that the bill covers all the
different mechanisms public agencies use to accept credit
card payment. Committee staff will continue to monitor
the bill to ensure that the changes do not create any
additional loopholes or discrepancies between various
mechanisms.
Support:American Federation of State, County and Municipal
Employees, (AFSCME), AFL-CIO; California Alliance
for Consumer Protection; Consumer Federation of
California; Internet Alliance; Older Women's League
of California
Opposition: Judicial Council; Morgan Stanley (Discover
Card); California State Association of Counties
(CSAC); Chief Probation Officers of California;
California Judges Association; California
Association of County Treasurers and Tax
Collectors; League of California Cities; Los
Angeles County Board of Supervisors
HISTORY
Source: Author
Related Pending Legislation: SB 1490 (Senate Judiciary
Committee) amends a section also
amended by this bill. Chaptering out
amendments will be needed as these
bills move through the legislative
process.
SB 1801 (Bowen)
Page 7
Prior Legislation: SB 557 of 2002 (Figueroa) would have
prohibited state agencies from imposing
credit card fees for internet transactions.
The bill was not heard in a policy committee.
**************