State pays $10 million a year in credit card fees | NevadaAppeal.com

State pays $10 million a year in credit card fees

It costs the state of Nevada more than $10 million a year to let people pay licenses, fees and other charges using their credit cards.

And as more and more agencies permit people to pay what they owe online, those credit card fees are rising every year, prompting some in the Legislature in particular to ask why the state doesn't make the customers — you — pay the tab instead of the state.

It isn't as simple as just adding a dollar to the cost of, for example, renewing your car's registration.

First, the state, like the stores and restaurants that accept Mastercard, Visa, American Express and Discover, isn't in charge. The credit card companies are and they do everything in their power to prevent merchants — including the state — from charging customers fees that would discourage them from using their credit cards to buy things.

DMV also argues that charging even a minimal fee would drive more people to their offices instead of paying online, forcing them to hire more staff.

Senior Deputy State Treasurer Buddy Milazzo, whose office handles credit card issues and negotiates what the state pays for the privilege, said the biggest dollar amount is the "interchange fee" that goes to the credit card company.

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That fee, which ranges up to 2 percent of each transaction (Nevada pays just 1.38 percent overall), Milazzo said is non negotiable.

"If they won't negotiate with Walmart, they sure won't negotiate with the state of Nevada," he said. "We're a pimple compared to Walmart. It's, do you want to accept a credit card or not and, if you do, here are your fees."

The vast majority of those fees are paid by the Department of Motor Vehicles which is budgeted for just over $7.2 million of the total $10.16 million the state expects to pay in each of the coming two years.

Fortunately for the state, most DMV fees are paid at the lowest rates credit card companies charge. Corporate and business credit cards are charged higher rates.

Most of the rest of the fees are paid by the Secretary of State's office where business licenses and numerous other business charges are imposed — about $2.75 million a year.

Those are just two of the two-dozen state agencies that accept credit cards. They range from the Public Employee Benefits Program for medical services to workers to Tourism, Wildlife, museums and parks, the Supreme Court and Gaming Control Board. But all those fee amounts are miniscule compared to DMV and the Secretary of State.

Milazzo pointed out that those fees apply only to credit cards. Under federal law (Dodd Frank) credit card companies can't charge fees for debit card transactions since that money comes directly from a consumer's bank account.

Milazzo said there are ways to charge the customer either a "convenience fee" or put a surcharge on transactions.

He said that raises two issues. First, is philosophical.

"We regard it as a cost of doing business," he said. "So does the governor's office."

Asked about the fairness of making all taxpayers cover the cost of major businesses paying their taxes and fees, he pointed out that the big guys like Wynn Resorts and major mining companies don't use credit cards to pay what they owe the state.

The second issue is logistical. Credit card companies won't let businesses — or governments like the state — make a profit from a convenience fee or surcharge. In most cases, adding a dollar to a vehicle registration wouldn't exceed that 1.38 percent overall rate. But what about the driver's license renewal that only costs $20 or so. That dollar would be 5 percent of the tab, more than double the state average 1.38 percent.

Percentage charges are also problematic.

"We could charge a percentage but it would be an ongoing analysis because they're all different," he said.

In addition, Milazzo said convenience fees can only be charged if the customer is actually receiving a "convenience."

He said customers who come to a DMV office, for example, aren't receiving a "convenience." Those who register and pay online are so the fee could be charged for that service but, then, there would be a difference between what walk-in customers and an on line customer pays for using the same credit card.

DMV also argues that charging even a minimal fee would drive more people to their offices instead of paying online, forcing them to hire more staff. But, logically, how many people are going to stand in line for two hours to avoid a $1 fee?

Milazzo said, however, there are costs to charging a fee in large part because that fee would have to be accounted for separately from the primary transaction.

"We would have to duplicate everything," Milazzo said.

And that means each entity and office accepting credit card payments would have to have its own, separate Merchant ID to account for the charge. DMV alone, he said, has 140 Merchant ID accounts, each with an annual fee. That's one for each location, each kiosk, each smog station. All would have to be duplicated to account for the fees.

"We would have to show two separate transactions for each payment," he said.

For DMV alone, there are more than six million transactions each year so recording and reporting them would involve significant costs, beginning with the cost of programming agency computer systems to deal with the added complexity.

Milazzo said, however, that if lawmakers and the governor's office decide to start charging for using a credit card, his staff will work with them to figure out how to do it and what it might cost to implement.

He said, however, they need to know it's not that simple.

"It's not as cut and dried as saying let's add a dollar to everybody's bill," he said.

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