A Commentary On Sonali Bose's May 6th Memo To The MTA Board Of Directors, Regarding Credit Card Fees And Rear Seat Payment Terminals. By John Han.

Photo by John Han.

On May 17^th, the MTA Board approved the industry’s first meter increase in eight years, partially with hopes to mitigate the new 5% credit card fees now being charged to drivers, and hopes to quiet the drivers’ protests. 

But prior to the meter increase, Sonali Bose, the MTA’s chief financial officer, wrote a memo to the MTA Board of Directors dated May 6^th.  That memo summarizes the history of San Francisco’s credit card policies with respects to its taxi industry, and details why the City is making drivers pay a higher than normal rate on card processing fees.  It also details how the fees are related to a requirement to install rear seat Passenger Information Moniters (PIMs), or “Taxi Tvs”, as they’re referred to in New York.

Sonali Bose’s full memo can be VIEWED HERE. 

This essay examines aspects of Bose’s memo from a driver’s perspective, and hopefully speaks on  enough behalf for of some broader citizenry of drivers. 

Let’s begin first with this excerpt regarding credit card fees.  Bose writes,

“Other major U.S. cities either don’t require credit card acceptance, their vehicles are not equipped to accept credit cards, or they have already been down the same road we are going down now:

 1) mandate credit card use, 2) make a decision about allocation of the transaction costs, 3) endure a firestorm of driver protest and threatened and actual strikes, and 4) move on.” 

(Memorandum:  ” Credit Card Charges:  Follow Up on Taxi Issues Raised at the April 5, 2011 Board Meeting”, May 6^th, 2011.  Bold italics mine.)

Bose highlights the, “firestorm of driver protest”, the threat of a strike, and the possibility of an, ‘actual’, strike. 

However, in lieu of the drastic reactions from drivers, Bose reveals a sentiment that the City has the resources to “endure” it, and power to, “move on”.

Photo by John Han.

But if the City’s intention is to actually hear the workers that it regulates, and listen to their input as to what kinds of regulations they would prefer, it should know by now to rethink some of its current policy, especially with its rear seat PIMs. 

Bose acknowledges that the 5% fees drivers are now being charged covers two main costs.  The first is the actual costs to process the credit cards.  That includes driver support services, customer service inquiries, issuing 1099k forms, and payment protection.

But the second part of the fees covers the installation of rear seat, “Passenger Information Monitors, (PIMs)”. 

Why is this? 

Why does the MTA want to install video monitors in the back seat of all of the city’s taxicabs?  And why is the MTA making the taxi drivers pay for it?  The MTA offers these reasons,

“PIM units provide customers with the benefits of security of a rear-seat credit card payment system, improved passenger information, promotion of local businesses and potential advertising revenue.  Without a PIM unit there is likely to be a variety of different payment methods depending on which taxi the customer uses).”

(Memorandum:  ” Credit Card Charges:  Follow Up on Taxi Issues Raised at the April 5, 2011 Board Meeting”, May 6^th, 2011.)

Photo by John Han.

My question to the MTA is ‘how much of this rationale was thought through with the interests for the vast number of drivers and the public rider-ship in mind (like it’s supposed to do), vs. for the interests of big business, other local businesses, and advertisers (which is not necessarily the MTA’s function)?’  For there are five reasons listed for PIMs.  Let’s look at each of the five, in no particular order, and see what we can make of it. 

1)  Promotion Of Local Businesses: 

There are five separate reasons stated above for PIMs.  Two of them are directly related to advertising.  The first advertising statement is “promotion of local businesses”.  That’s all fine and good.  San Francisco could do well to encourage the growth of local businesses, and most likely, so could the businesses.

However, when implementing taxi policies, San Francisco must hold in high regard California’s law requiring it to, “protect the public health, safety, and welfare”.  (California Government Code Section 53075.5)   A good example of a government meeting this requirement would be ensuring that a motor-vehicle-for-hire is safety inspected, insured, and that a driver is licensed.  Another example could be requiring all cabs to accept credit cards and debit cards as payments for fares, etc. 

Photo by John Han.

However, it is arguable whether San Francisco’s new requirement giving passengers exposure to video advertising and promotion of local businesses while riding in a cab, necessarily regards the standard very highly for, “public health, safety, and welfare”, or whether that shouldn’t be classified as something else.  The MTA is allowing third party entities to operate their own advertising businesses inside of taxicabs while taxi drivers (independent contractors?), are driving those cabs.  The advertising part of these third party businesses are clearly distinguishable from cab service, and may be more neutral in its purpose to “protect the public health, safety, and welfare”.  Therefore, this seems like more of a business deal, similar to advertising on Muni buses and bus stops, rather than an interest to protect the public.  Nonetheless the MTA is making the taxi drivers pay for the equipment that will serve as the billboard for these ads. 

Additionally, the so-called “independent contractor” taxi drivers could never negotiate with advertisers, a percentage of revenue from the advertising, as part of any deal between them. 

2) Potential Advertising Revenue:

To whom would the revenues go?  According to the New York Times, those revenues would go almost entirely to the credit card service providers like Verifone, which has reportedly increased revenue by 60% in one year due to rear seat PIMs.  Additionally, the Times article reports that drivers receive no revenues from the ads.  

And Bose, in her memo, states a discrepancy regarding the revenues. 

She states that in October of 2010, the Taxi Advisory Council amended the SFMTA credit card waiver to require,

“a ten percent contribution of advertising revenues generated by the PIMs to the Driver Fund.” 

This is highly misleading though, as it suggests that the Drivers Fund would benefit from ten percent OFF THE TOP OF ALL AD REVENUE, and thus taxi workers are helped out in that way.  However, Deputy Director of Taxi Services Christiane Hayashi, in her final memorandum to the MTA Board of Directors dated October 15, 2010, states something entirely different.  In her memo regarding “Processing Non-Cash Payments In Taxis” she states, “Ten percent of advertising revenues in excess of those required for equipment installation and maintenance shall be paid into the Drivers Fund”  (Memorandum, October 15, 2010:  Processing Non-cash Payments In Taxis” Bold italics mine).  There could be a BIG DIFFERENCE between an amount that comes from skimming 10% right off the top of all ad revenues, as Bose’s statement to the MTA Board implies, vs. taking 10% of whatever’s left after equipment installation and maintenance costs for PIMs have been all paid for, as Hayashi’s memo states.  

(Note:  As a Drivers’ Representative on the Taxi Advisory Council (TAC) I have asked during a Council Liaison’s report for a breakdown of the 5% fees and how ad revenues would be divided up between the vendor and the Drivers’ Fund, and whether cab companies could take a percentage from the ads, thus reducing revenue to the Drivers’ Fund.  I thought that my question was a valid one.  But the answer from the Deputy Director was crass, to the effect of, “It is of no concern to the SFMTA how the 5% fees would be broken down between vendors and cab companies.”

The MTA Board of Directors should note this discrepancy, as we the drivers are not privy to the breakdown of these statistics.

3) The Benefits Of Security Of A Rear-Seat Credit Card Payment System:

Photo by John Han.

What’s the relevance of a “rear seat credit card payment system”?  What exactly are the benefits?  And what are the problems that this solution fixes?

The MTA’s statement regarding “security of a rear seat payment system”, fails to state what negative and overwhelming incidents the agency has documented over the years, and what common injuries have incurred again and again, against San Francisco passengers having to hand their credit cards to their taxi drivers for a fare, inasmuch as their needs to be a solution to a front seat system.

There are already front seat systems in most cabs.  Nonetheless, the MTA is making drivers pay to solve some ‘crisis’ that apparently exists with front seat credit card systems. 

4) Improved Passenger Information:

This is the only purpose listed amongst the five that has any merit.  However, if Yellow Cab’s PIMs are any indication, the information that the MTA is talking about is merely the same information posted on the pink placards on the sides of taxi interiors.  They display meter rates, phone numbers, compliments and complaints access, the meter-and-a-half rate policy, etc.   I guess that’s good for when a passenger can’t read the small print on the placard on the side of the interior.  Then they could look on a screen. 

But this doesn’t justify making drivers have to pay to have entire rear seat PIMs installed.  Especially when a vast number of drivers do not want them, and there’s enough riders in New York who think ads on these PIMs are annoying.  Plus, disputes over things like, say, a meter-and-a-half rate rarely occur.  If they do, drivers could simply point to the information already posted on the taxi’s interior for proof.  If the print is too small, then the MTA could mandate that all cab drivers keep an 8 1/2 X 11 inch laminated notice in their work packs that could have the same information printed on it with brail access. 

We are already required to carry in our work packs a map, a copy of the regulations, flashlight, etc.  This would be one simple addition to our work packs, and preferable over rear seat PIMs.

5) Without A PIM Unit There Is Likely To Be A Variety Of Different Payment Methods Depending On Which Taxi The Customer Uses: 

This is false, or at best, not necessarily the truth.  But at this level it is a moot issue. 

If the MTA continues to go forward with the credit card waiver in its current form, it is not by any means a guarantee that all thirty-one or so of the color schemes in San Francisco will voluntarily participate under the waiver.  Therefore, if that were to be the case, then not all cabs will have PIMs, and the industry under the waiver would lack uniformity in payment methods. 

Photo by John Han.

Additionally, due to the idea that the PIMs are raising credit card fees up to 5% rather than a more normal rate, is in itself, the reason why drivers are looking towards alternatives such as “Square” which Christiane Hayashi even encouraged drivers to do, in order to bring their costs down, thus, creating a “variety of different payment methods”.  

As the MTA memo states, there are only five companies so far that have voluntarily come forward to participate in the waiver.  Where are the rest?  

The MTA’s memo states that, “Drivers at most companies are already paying unauthorized and unregulated credit card processing charges of five to ten percent or more”.  Since that’s been going on, and few would deny that it has been going on, then where is the evidence that the MTA’s waiver cracks down on that? 

At this point no one is certain. 

But here is something that is fairly certain…

The immediate effect of the waiver is that it allows the larger companies like Yellow, Luxor, and DeSoto etc., that are more scrutinized by the government, and under pressure to comply with regulations, to stay competitive with smaller, less regulated companies, that have profited illegally by charging their drivers for processing fees under the radar.

That’s because in this case, the waiver lets bigger companies to now pass their credit card fees onto their drivers also, but lets them to do so in a way that keeps them in compliance with regulations.  That would be in contrast to the way smaller companies have been ignoring regulations and charging their drivers illegally. 

Photo by John Han.

It does not, however, ensure uniformity in payment methods as Bose’s statement suggest to the Board of Directors, as uniformity would require ALL companies to install PIMs, which means all companies would have to voluntarily come under the waiver.  The likeliness of this happening is uncertain. 

If the City wanted PIMs in all cabs for uniformity’s sake, it may have to mandate PIMs in all cabs rather than issue them under the voluntary waiver.  However, PIMs should be abandoned altogether.  

Conclusion:

Many drivers feel there should be no credit card fees imposed upon them at all for very good reasons that I won’t go into now.  Additionally, Sonali Bose notes well that if companies had to continue absorbing credit card costs, they would demand a gate increase.  Therefore, in my opinion it is not totally unreasonable that drivers be expected to pay some type of a credit card fee, unless they want to deal with gate increase.

But because of a vast number of taxi drivers disliking even the idea of PIMs, the MTA should reconsider whether it wants to include them as a requirement under its credit card waiver.  The waiver policy does require that the terms of the waiver,

"demonstrably improve the quality of taxi service to the public and driver working conditions." 

(Memorandum, October 15, 2010:  Processing Non-cash Payments In Taxis”)

For drivers, the PIMs represent an excessive 5% amount in processing fees rather than a more normal 2.75% - 3%.

This amount has led to emotional resentment amongst drivers, and has resulted in drivers refusing to accept credit cards altogether.

If the MTA were to abandon the PIMs, it would seem a more realistic way for the agency to achieve uniformity in credit card payment methods.   Why?  Because...

PIMs ARE CAUSING DRIVERS TO LOOK FOR VARYING PAYMENT METHODS LIKE "SQUARE", OR TO REFUSE CREDIT CARD PAYMENTS ALTOGETHER!

Discipline is not the answer.  

For uniformity’s sake, the MTA should simply mandate that there be an approved front seat credit card processing system in all cabs with a processing fee.  With the absence of rear seat PIMs, what could conceivably come to no more than 3% to drivers.  Yellow, Luxor, and Green Cab are simple examples of companies that have approved front seat systems, with each one being a little different, but all working the same.  

But going back to the 5% fee again, within that higher 5% fee, there is a portion that,

“Guarantees payment to drivers of charges up to $50 that are processed through the rear-seat touch screen monitors (PIMs) whether or not they are subsequently denied (Verifone).”

(Memorandum:  ” Credit Card Charges:  Follow Up on Taxi Issues Raised at the April 5, 2011 Board Meeting”, May 6^th, 2011.)

This guarantee should be an option for drivers, thus allowing drivers to choose a higher 5% fee, or remain at 2.75% - 3% based on whether they want a guarantee or not.

Since drivers under the waiver can choose their own bank account for credit card deposits, they should be asked if they would like to go with a higher 5% fee to include a guarantee, or to go with a more standard 2.75% - 3%, and abandon the guarantee. 

I would most likely abandon the guarantee in favor of choosing a 2.75% - 3% fee, since in my case I have only had one credit card payment in about 7 years for which I did not get paid, and it was for a minimal amount.  Therefore, abandoning the guarantee would represent a cost savings to me.

These are just some things the MTA could do to reach a place of civility and compromise with the industry, especially with the taxi drivers in this case.