‘LaPolitics’: Will new debit card rules affect local governments?

Senate Commerce Chair Beth Mizell thought she had a relatively simple bill.

Senate Bill 254—now Act 751—bars merchants from charging extra to customers who pay with a debit card. Federal law has banned the practice for over 15 years, but the new state law adds some teeth to a rule that generally has not been enforced.

The bill sailed through the process with nary a red card in sight, passing the Senate unanimously and the House with an 83-14 vote. But in recent weeks, Mizell and her office have been fielding concerned phone calls from an unexpected source: local government.

“It’s federal law that you cannot put a surcharge on a debit card transaction,” Mizell says. “But you know who’s doing it? All the municipalities, parishes and state government.”

Under the Durbin Amendment of the federal Dodd-Frank Act, passed in 2010, businesses are not supposed to add surcharges to purchases made with debit cards. The amendment also capped, but did not eliminate, the interchange fees card issuers charge to merchants.

The new state law empowers the attorney general’s office to penalize offenders up to $500 per violation. Customers can report violations via a toll-free hotline or an online portal.

Customers also have the right to sue offending businesses, but only after providing written notification of the alleged violation to the business and allowing 30 days for reimbursement of the banned charges.

The change is controversial among business owners who now have to eat those interchange fees. Whether governmental entities will have to do the same is an open legal question.

Tony Tillman, an attorney representing West Vernon Parish Water District No. 1, has requested an opinion from Attorney General Liz Murrill regarding whether Act 751 applies to the water district. He notes that the legislation specifically refers to “retail businesses.”

“Since the Water District is a Political Subdivision, as it is a subdivision of the Vernon Parish Police Jury, I question whether that Act applies to the District or not,” Tillman states in his request dated July 16.

Debbie Henton, general counsel with the Police Jury Association of Louisiana, says the Durbin Amendment does not prohibit debit card surcharges for state and local governments. She also points to a state statute that authorizes state departments, agencies and commissions to collect debit card fees, and another law that does the same for parishes and municipalities.

But the law doesn’t explicitly apply to political subdivisions of parishes and municipalities, like that Vernon Parish water district.

“Because that’s not explicitly exempted in the law, that would be the area that could theoretically lead to litigation,” Henton says.

Along with the cost, the local entities would have to put in more administrative work to separate debit card payments from credit charges, since the law does not apply to credit cards.

An AG’s opinion does not carry the force of law. But those opinions provide confidence to local officials that they are interpreting the law correctly, Henton says.

She also has reached out to Treasurer John Fleming’s office, which she says sets state policy on the issue. If the treasurer is still collecting debit card fees, that would give her additional confidence on the subject.

“The definition and application of various bank debit card transaction fees are presently unclear under this new law, and further study and analysis are needed before a clear policy can be set forth,” Fleming said in a prepared statement to LaPolitics. “The Treasury will consult with other state agencies and the legislature to clarify any ambiguity regarding this new law.”

Louisiana Municipal Association Executive Director Richard Williams says his organization is monitoring the situation and awaiting the opinion from Murrill’s office.

“Obviously, we want our local governments to remain whole,” he says.

As for state government, at a Senate committee hearing during session to approve new fee schedules, Mizell pressed officials from the Louisiana Department of Health about why the department was imposing a 2.5% surcharge on debit card transactions. She was told that the charge did not qualify as a surcharge because it is a convenience fee applied to any electronic payment regardless of the method.

“It just sounds like a rose by any other name is still a surcharge,” Mizell responded. “I’m not picking on LDH, but I think we need to reevaluate that.”

Jeremy Alford publishes LaPolitics Weekly, a newsletter on Louisiana politics, at LaPolitics.com. Follow him on Twitter, or Facebook. He can be reached at JJA@LaPolitics.com.