Board of County Commissioners. Mike Barnhart, Financial Services Manager

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1 Memorandum Date: April 14, 2015 Order Date: April 14, 2015 TO: DEPARTMENT: PRESENTED BY: Board of County Commissioners County Administration - Operations Mike Barnhart, Financial Services Manager AGENDA ITEM TITLE: ORDER/IN THE MATTER OF AMENDING CHAPTER OF THE LANE MANUAL REGARDING CREDIT CARD SERVICE FEES I. MOTION Move approval to amend Lane Manual by removing language regarding charging a minimum service fee of 25 cents and adding language to allow third-party vendors to charge service fees directly to customers as follows (amendments are in bold): Credit Card Service Fee. County departments receiving payment via credit card may charge a service fee equal to the greater of 25 cents or not to exceed 3% on the gross amount of the transaction. The fee will be used to offset credit card processing and related costs of the department. County departments are also permitted to contract with third-party vendors to direct charge customers a service fee to cover the costs of hosted payment services and related card processing costs. Such fees will be pre-approved by the customer, recovered by the third-party vendor, and are not considered fees charged by Lane County. II. AGENDA ITEM SUMMARY This agenda item updates and adds new language to Lane Manual concerning credit card service fees. III. BACKGROUND/IMPLICATIONS OF ACTION A. Board Action and Other History Agenda Cover Memo Template 2015.docx Page 1 of 7

2 On recommendation of the Finance and Audit Committee, the Board of County Commissioners approved Lane Manual titled Credit Card Processing Fee on July 23, 2013 (Board Order ). B. Policy Issues Lane Manual 4.010(2) (d) states: C. Board Goals Charges for services will be set by the Board of Commissioners and based on an analysis of who benefits from the service, amounts charged by other agencies for similar services, the actual direct and indirect cost of providing the services, and statutory limits. It is the general policy that fees will be set to recover the cost of providing the service. This item supports the Lane County Strategic Plan by providing accurate financial information to decision makers for the identification of operating efficiencies/inefficiencies that support the larger goal of building a stable and sufficient strategy for funding services. This item also supports the Plan by ensuring resource accountability and fiscal quality to our taxpayers. D. Financial and/or Resource Considerations This agenda item has the potential to reduce operating costs of County departments. Although it is not possible to provide a firm number, Financial Services estimates between $25,000 and $75,000 per year is a reasonable assumption. E. Health Implications There are no health implications for this item. F. Analysis Accepting credit cards as a mode of payment With the intensive use of technology in our society, it is very difficult to transact business without it. In particular, the use of credit cards is a well-established practice and those businesses that do not accept them as a source of payment are at a disadvantage. Like most governments, Lane County has been slow to accept credit cards as payment for services for many reasons: Credit card processing fees can be costly, running from 1% to 5% of a transaction. Some charges for services are set statutorily and cannot be adjusted to Agenda Cover Memo Template 2015.docx Page 2 of 7

3 recoup credit card processing fees. The costs of equipment/software can be expensive. The effort required to integrate credit card acceptance into existing operations can be time consuming. Some operations see accepting cards are impractical (e.g., remote locations like transfer stations and transitory operations like parole and probation). Governments services are often monopolies and don t have to be competitive for services. There is no pressure to accept credit cards. Additional training of staff is required. Technology can be intimidating. Regardless, the use of credit cards is so prevalent that many citizens do not carry cash or checks anymore. It is not unusual for a citizen to have to leave County property and locate an ATM to get cash to pay for a County service. Not only is this frustrating to the citizen, but the County may be losing out on revenue opportunities when citizens can go elsewhere for services. Fortunately, technology has made huge progress the last few years and many of the concerns above can be overcome. The lack of government s move to credit card acceptance has hurt its reputation, labeling them as slow moving, inefficient, and wasteful. Promoting the acceptance of credit cards at the County can change this perception by increasing the speed and convenience of service delivery, efficiency of electronic transaction settlement, and the reduction of manual processes. Reducing reliance on paper checks Although credit card acceptance has its own costs, so does the acceptance of paper checks. Here are a few of the disadvantages: The human effort involved in accepting the check, preparing deposit slips, and getting the money to the bank can be expensive. Each step requires a manual process that costs time and money. Checks often bounce due to insufficient funds. Not only does the bank charge us a fee for each returned check, but there is human labor involved in contacting the customer and getting payment. It we can t get immediate payment, amounts owed must be tracked and managed (accounts receivable), and maybe even written off as a bad debt if deemed uncollectible. Although accepting paper checks is necessary (many citizens don t have access to credit cards), accepting credit cards can lower the effort of human involvement. Convenience Fees - Prior to November 6, 2012 Credit card convenience fees are defined as additional charges to an original Agenda Cover Memo Template 2015.docx Page 3 of 7

4 transaction amount that the card holder pays for the convenience of using an alternate payment method. For example, if a citizen purchased a dog license online for $50, a fee to pay for the convenience of buying it on their computer at home is $1.75, for a total cost of $ Prior to November 2012, convenience fee rules for Visa were as follows: A convenience fee can be charged only for the bona fide convenience of using an alternate payment channel outside of the merchant's normal business practice (e.g., face-to-face transactions). The Service Fee: o Must be disclosed to customers as a charge for alternate payment channel convenience. o Is applied only to non-face-to-face transactions. o Must be a flat, fixed and/or tiered amount regardless of the amount of payment due (see Tax Payment Program Exception below). o Is included as part of the total transaction. o Cannot be assessed on recurring transactions. o Is assessed by the merchant that provides goods and services to the cardholder and not by a third party. The customer must be given the opportunity to cancel prior to the completion of the transaction Tax Payment Program Exception - The Visa Tax Payment Program allows governments to assess cardholder fees on approved tax types. The program allows Lane County to charge a fixed convenience fee of $3.95 for debit cards, a variable service fee of 2.49% on credit cards, and $3 fixed fee on e- checks. Service Fees - After November 6, 2012 Effective November 6, 2012, in a move to regain lost credit card usage among higher education and government merchants, Visa created a new Visa Government and Higher Education Payment Program and changed its rules for assessing fees. Specifically, the phrase convenience fees is no longer used. Rather, governments may now assess service fees in face-to-face transactions provided the payment and service fee transactions are submitted and processed as two separate transactions. This change prompted the creation of Lane Manual Unfortunately, two issues arose: 1. Card processing machines are not programmable for minimum service fees. Therefore the language in the Lane Manual setting a minimum fee of 25 cents was not appropriate and needs to be removed. 2. No Lane County departments were willing to self-charge service fees because Agenda Cover Memo Template 2015.docx Page 4 of 7

5 of the additional accounting required to record and manage the service fee, plus the additional customer confusion and counter time required to swipe a credit card twice. Third-party Charged Service Fees (also called the Service Fee Model) In order to overcome these departmental concerns, two new alternatives became available. The first alternative, like the property tax and dog license programs, allows third party vendors to host websites to charge the service fee. In these situations, the third party vendor assesses the fee and keeps it. In return, they waive our card processing costs. US Bank currently hosts both our property tax and dog license websites and charges services fees to our customers for this service. The second alternative is much like the first, except rather than third-party websites, third-party card swipe machines are used. Under this alternative, a customer will swipe their card and two receipts will print out one for the cost of the product or service and one for the service fee. As with the websites, the service fee is charged by the third party vendor who waives our card processing fees in return. At this time we have gone live with three County services to test this technology (Lane Events Center, Parole & Probation, and Lane County Family Mediation). All have reported success and like the new technology. The only major stipulation is the posting of signs at the service windows stating the service fee exists. Below is an example of what the Lane Events Center has posted. Effective January 2015 All credit card and debit card transactions will incur a 3% service fee for all charges. Lane County does not receive any portion of the service fees. Consistency in Policy There has been concern that the County will have an inconsistent policy towards card processing costs and third party service fees. For example: A&T allows the third party vendor to charge a 2.49% service fee for paying property taxes online. A&T pays no processing costs. Agenda Cover Memo Template 2015.docx Page 5 of 7

6 Land Management uses card swipe machines and their customers do not pay service fees. Land Management pays all of the processing costs. The Lane Events Center uses a card swipe machine and the third party vendor charges a 3% convenience fee. The Lane Events Center pays no processing costs. As a result, a citizen could experience three different types of card processing decisions at the County. They could pay 2.49% at A&T, nothing at the clinic, and 3% at the Lane Events Center. It may seem the County is favoring certain populations over others. However, others argue service fee decisions should be based on business needs, not a one-size-fits-all philosophy: 1. Some County operations desire the service fee model because they cannot afford to pay the processing costs themselves. An example is Deeds and Records where their revenues are statutorily set and cannot be adjusted to cover card processing costs. 2. Some County operations argue it is more cost effective to pay the card processing costs themselves in an attempt to encourage more payments that otherwise may not be made. 3. Some County operations argue service fees are not appropriate for hard-ship cases among the health, clinical, incarceration, or parole populations, or where charges are imposed like fines and penalties. Finance and Audit Committee The Finance and Audit Committee met on March 19, 2015 to discuss the recent changes to credit card processing rules. All the issues noted above were reviewed and the proposed amendments to Lane Manual were discussed. The departments of Public Works, Health and Human Services, and Sheriff s Office all spoke to their respective operations. It is important to note the departments were adamant that they maintain the option to either cover the service charges themselves, or pass them on to their customers based on the business needs of their individual operations. Based on these discussions, the Finance and Audit Committee voted unanimously to forward to the full Board a recommendation to adopt the changes to Lane Manual as stated above. G. Alternatives/Options Agenda Cover Memo Template 2015.docx Page 6 of 7

7 1. Recommend the Board of County Commissioners approve removing the 25 cent minimum service fee and approve the additional language concerning third-party service fees. 2. Recommend the Board of County Commissioners approve removing the 25 cent minimum service fee and reject the additional language concerning third-party service fees. 3. Provide the Staff with recommendations for additional research and analysis. IV. RECOMMENDATION Staff recommends Option 1. V. TIMING/IMPLEMENTATION If approved, Staff will begin working with departments to expand the use of third-party hosted websites and credit card machines as soon as practical. VI. FOLLOW-UP None VII. ATTACHMENTS None Agenda Cover Memo Template 2015.docx Page 7 of 7

8 BEFORE THE BOARD OF COMMISSIONERS OF LANE COUNTY, OREGON ORDER NO: IN THE MATTER OF AMENDING CHAPTER 60 OF THE LANE MANUAL REGARDING CREDIT CARD SERVICE FEES WHEREAS, the Board of Commissioners has the authority to approve amendments to the Lane Manual; and WHEREAS, certain changes to Lane Manual Chapter are desired to remove the $.25 cent minimum service fee and add third party processing fees. NOW, THEREFORE, the Board of County Commissioners of Lane County ORDERS that Lane Manual Chapter be amended by removing, substituting, and adding the following sections: REMOVE THESE SECTIONS INSERT THESE SECTIONS Amended section is attached hereto and incorporated herein by reference. ADOPTED this day of, Jay Bozievich, Chair, Lane County Board of Commissioners APPROVED AS TO FORM Date LANE COUNTY OFFICE OF LEGAL COUNSEL Revised 2/26/14

9 Lane Manual Credit Card Service Fee. County departments receiving payment via credit card may charge a service fee not to exceed 3% on the gross amount of the transaction. The fee will be used to offset credit card processing and related costs of the department. County departments are also permitted to contract with third-party vendors to direct charge customers a service fee to cover the costs of hosted payment services and related card processing costs. Such fees will be pre-approved by the customer, recovered by the third-party vendor, and are not considered fees charged by Lane County. (Revised by Order No , Effective ) LM BCCVER.doc 60-1 LM60

10 At left margin indicates changes Bold indicates material being added Strikethrough indicates material being deleted LEGISLATIVE FORMAT Lane Manual Credit Card Service Fee. County departments receiving payment via credit card may charge a service fee equal to the greater of 25 cents or not to exceed 3% on the gross amount of the transaction. The fee will be used to offset credit card processing and related costs of the department. County departments are also permitted to contract with third-party vendors to direct charge customers a service fee to cover the costs of hosted payment services and related card processing costs. Such fees will be pre-approved by the customer, recovered by the third-party vendor, and are not considered fees charged by Lane County. (Revised by Order No , Effective ) {LM LEGVER;1} LM LEGVER.doc 60-1 LM60