Transaction fee proposed for payments by card, but is it legal?
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An angry crowd gathered at the Kokomo Common Council meeting on Oct. 28 to protest the addition of a $10 monthly fee for trash collection. That measure passed on first reading, and the crowd left the building unsatisfied.
What they missed, however, was a second fee proposal that was submitted immediately following the trash fee debate. The City of Kokomo has asked the council to pass an ordinance establishing a fee on all bank card and credit card transactions for city services.
Councilman Tom Miklik carried the bill for the administration and read its contents into the record. A full text of the ordinance may be found on the City of Kokomo’s website on the city council’s page.
The ordinance would authorize the collection of a convenience fee and transactions fees for payments by debit cards and credit card transactions within the city, not to exceed $3.
The convenience fee, the ordinance states, would be charged to customers for making a card payment to cover part or all of the transaction cost incurred by the city. The ordinance includes transactions made by credit cards, debit cards, charge cards, or stored value cards.
While the city controller’s office would monitor the collection of these fees, the ordinance leaves the implementation fee to the discretion of the individual department heads. Therefore, the parks department could choose to establish fees on transactions at Kokomo Beach, for instance, while the street department may decline to charge a convenience fee on top of the proposed $10 trash fee.
City attorney T.J. Rethlake attempted to clarify how the fee would be administered.
“The transaction fee would be a percentage of the amount charged, meaning that if you charge $10, and it cost us three percent for the MasterCard or Visa transaction, that is passed through to you,” Rethlake said. “The discretionary part is for the department head, because we don't want parks and recreation charging, say $5, to go to the pool. You don't want to charge that additional $3 on top of it.
“Certain transactions make sense, while others that are nominal or lower, don't make sense to charge the transaction fee. But it would be applied uniformly to all customers.”
Rethlake added that eCheck and ACH transactions would be exempt from the fee.
One citizen who did stick around for the reading of the ordinance immediately questioned the legality of the fee as it pertains to debit card transactions. She cited the Durbin amendment to the Dodd Frank financial reform legislation passed by U.S. Congress in 2010.
The amendment requires the Federal Reserve to limit fees charged to retailers for debit card processing. These fees are charged by banks for the privilege of accepting payment cards. The Durbin amendment, as interpreted by the Fed, caps the debit card fees at 21 cents plus five basis points multiplied by the amount of the transaction.
When presented with the prospect of the Durbin amendment impacting the city’s proposed action, Miklik dismissed the citizen’s claims.
“My cards are charged,” said Miklik. “All debit cards are because they are run through the charge card companies.”
“But that doesn’t make it legal,” the citizen replied.
“I am not aware of the Durbin amendment of the Dodd Frank act, and I'm happy to look into that,” said Rethlake.
Rethlake admitted "maybe I need to do some more homework" when presented with the information, contending that the reason for a first reading is to bring information like this to light.
The council, however, needed no more homework. They readily passed the fee ordinance unanimously on first reading without further discussion. The ordinance returns for a second and final reading on Mon., Nov. 18, alongside the proposed $10 trash fee ordinance. The council holds its caucus at 5:30 p.m., with the council meeting taking place at 6 p.m. at City Hall.