Cost Accounting in Local Government

Are Credit Card Processing Fees for You?

For many years the credit card industry vigorously fought against any effort to charge a processing fee to use a credit card.  Credit card companies fought the same battles against processing fees charged by government as they did against private businesses.  But as more and more government agencies started accepting credit cards for payment for everything from recreation classes to TOT taxes, the processing costs to local government started to add up.

But finally the tide turned, and as of 2014 in California, government agencies were allowed to pass through a processing fee for the use of credit or debit cards as long as the fee did not exceed the costs.  Government Code Section 6159(h) was amended to read:

“…a court, city, county, city and county, or any other public agency may impose a fee for the use of a credit or debit card or electronic funds transfer, not to exceed the costs incurred by the agency in providing for payment by credit or debit card or electronic funds transfer.”

Now that your agency has the ability to pass the cost of credit card processing, you still should ask yourself if it is the right fit for your agency.

The first thing to look at is who you want to charge.  Do you want to charge all credit card uses or just uses that involve charges over a certain dollar amount, say $500?   You want to encourage the use of credit cards to make overall payment processing quicker and leave staff time to be spent on other tasks, but you should not have to pay for the frequent flyer miles for the owner of the local hotel.  You need to determine how much a credit card processing fee will encourage or discourage the use of credit cards in your community.

Another option is to not charge a processing fee at all and spread the costs over all users as overhead.

But, once you have decided you want a credit card processing fee, you then need to determine if you want to charge a percent fee or a flat dollar fee.  But I really think you want a percent fee since it scales up with the amount charged and that is how the credit card company is mostly charging you.

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