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Taxing Issue
From the April 2002 Issue of CardTrak

As the annual tax reporting season draws to a close, a battle has erupted among credit card issuers and networks to capture tax payments on credit cards. This month, First USA and United Airlines announced that they will award a 5,000 air mile bonus to cardholders using the United Mileage Plus VISA to pay taxes through May 30. The bonus is in addition to the one-mile-per-dollar earned under the program. In March, VISA USA reached an agreement with Official Payments Corporation to permit VISA cards to be used for payment of federal and state income taxes. VISA had been a holdout in the tax payments via credit card market due to its regulations which prohibit merchants from charging a fee to cardholders for acceptance. OPC has been offering its tax payment service on MasterCard, Discover, and American Express cards since 1998. OPC generally charges consumers a fee of approximately 2.5% for each transaction, since most government entities cannot legally pay a merchant or discount fee for such transactions. Following VISA's announcement to join the program, American Express and Citibank issued press releases to encourage consumers to use their cards for tax payments. Citibank encouraged taxpayers to use its American Airlines AAdvantage Program to earn one AAdvantage mile for every dollar of income tax paid. American Express said it will award double SkyMiles when cardholders pay federal taxes, or one SkyMile when paying state taxes, on their Delta SkyMiles Credit Card, between now and April 16, 2002. Other American Express cardholders can earn points through the Membership Rewards program. Currently, OPC has agreements to collect and process credit card payments with the IRS, 21 state governments, and more than 1,200 counties and municipalities. In 2001, OPC collected and processed more than one million transactions totaling $1.2 billion in federal, state, and local government payments. According to the IRS, as of mid-March, the agency had received more than 20,000 credit card payments, up 13% from nearly 18,000 for the same period last year. OPC was formerly known as U.S. Audiotex Corp. and went public in 1999.

RENT PAYMENTS

With the saturation of credit cards in the USA, card networks are looking for ways to capture more sales volume. This month, VISA U.S.A. and Lincoln Property Company announced an agreement to streamline rent payments for more than 10,000 residents of Lincoln's premier development known as The Village in Dallas, TX. Beginning immediately, residents of The Village, which is comprised of 13 properties and 7,300 units, will have the option of paying their monthly rent automatically with their VISA card. In November 2000, VISA first launched a program to incent tenants to charge rent payments to their VISA cards. As a result, San Francisco-based RentPayment and VISA U.S.A. formed a partnership and launched a contest. RentPayment and VISA offered $500 in rent paid each month to several lucky subscribers within the RentPayment billing network. VISA also has similar deals with AIMCO, the largest owner and operator of apartment communities in the USA, and Westdale Asset Management. Westdale says 1,500 residents in the Atlanta area took advantage of the program. VISA said that a survey it conducted with AIMCO property managers found that 81% say the option to pay via payment card makes apartment homes easier to rent, 83% say the use of payment cards increases on-time payments, and 22% say the use of cards results in fewer people moving out.

DEBIT CARD LAWSUIT

VISA and MasterCard have asked the U.S. Supreme Court to review the class-action status of the Wal-Mart debit card lawsuit. Last year, the Second Circuit Court of Appeals turned down the motion submitted by the two card associations to deny class certification. The 2-to-1 decision by the appeals court enabled more than four million U.S. merchants to join in the suit which was originally filed in 1996. In the dissenting opinion, Judge Jacobs, the senior judge on the Second Circuit panel, argued that the Court was obligated to look at two fundamental issues: whether the case can be manageably tried as a class action and whether common issues predominate among the four million merchants now in the class. According to the documents filed this month with the U.S. Supreme Court, the plaintiffs are seeking up to $100 billion in damages, which could force VISA and MasterCard to settle regardless of the merits of the case. The card networks say the class status makes the case unwieldy to manage and may unfairly produce coercive settlements. One year ago, VISA and MasterCard filed an appeal to the Second Circuit Court of Appeals seeking to reverse Federal District Court Judge John Gleeson's decision granting class-action status. The lawsuit, originally filed by Wal-Mart, Sears, and eleven other retailers, contends retailers are victims of an illegal tying arrangement, under which merchants are forced to accept “VISA Check” and “MasterMoney” off-line debit cards under the associations' "Honor All Cards" rule. Retailers want the option to deny customers the right to use an off-line VISA/MasterCard debit card, forcing consumers to use PIN numbers on such debit cards. The retailers also contend that VISA and MasterCard conspired to monopolize the POS debit card market and suppress the growth of competing regional ATM/POS payment systems.

SCAM CRACKDOWN

The Federal Trade Commission has charged Ontario-based Consumer Alliance with deceptively marketing worthless credit card protection programs to U.S. consumers. In addition, the complaint alleges that in other calls the defendants' telemarketers promised U.S. consumers a credit card with a low interest rate, or a low interest rate on the consumers' existing credit card, in exchange for a $349 or $399 fee. In fact, according to the FTC, those consumers only received a list of banks to which they could apply for credit cards. Approximately 10,000 Americans lost a total of more than $3.0 million in the scam. Members of the Ontario Provincial Police Anti-Rackets Section said this month they have arrested and charged four individuals and three corporations in connection with the telemarketing scheme. The companies were Consumer Alliance, Cranberry Place Promotions, and Bio Source Financial. Meanwhile, a U.S. District Court has held a magazine subscription telemarketing group in contempt of court and ordered it to pay $39 million in consumer redress for violating the terms of a 1996 Federal Trade Commission settlement. Judge Vicki Miles-LaGrange wrote that despite the 1996 permanent injunction that barred various deceptive selling practices by the telemarketers, evidence presented by the FTC "…clearly and convincingly indicates that defendants' acts and practices in connection with the sale of magazine subscriptions and magazine subscription packages violate the . . . Permanent Injunction." The judge ordered H.G. Kuykendall, Jr., Diversified Marketing Service Corp., H.G. Kuykendall, Sr.; C.H. Kuykendall; National Marketing Service, Inc., NPC Corporation of the Midwest, Inc.; and Magazine Club Billing Service, Inc. to turn over the money to the FTC within 30 days of her order and ordered the FTC to submit a plan for the disbursement of this money to the court for review and approval. The Kuykendalls and their companies are based in Oklahoma City, Oklahoma. In March 1996, the FTC filed suit charging the defendants with making misrepresentations in connection with the telemarketing of magazine subscription packages to consumers. Specifically, the agency charged that the defendants misrepresented the cost or duration of the subscriptions; misrepresented the reason they obtained consumers' account information; charged consumers' accounts without authorization; refused to cancel subscriptions; misrepresented consumers' rights to cancel telemarketing contracts under state law; and threatened to harm consumers' credit ratings.

CARELESS AMERICANS

A new survey shows that Americans are very concerned about someone obtaining their credit, debit, or check card numbers, but at the same time a surprising number of Americans are careless when it comes to disposing of receipts. According to a recent Paymentech survey, almost half the population is more concerned about someone obtaining their credit, check, or debit numbers than about losing their car keys, checkbook, appointment book, cell phone, or even having someone hack into their computer files. Yet 35% of those polled said they are "just a little" or "not at all" concerned that many receipts expose entire account numbers and expiration dates. On those occasions where consumers do not keep the receipt from a credit card purchase, 33% throw the receipt away after tearing or shredding it, 13% throw the receipt away without tearing or shredding it, 13% leave it in the bag they got with the purchase, 2% leave it with the clerk, store, or restaurant, and 24% never throw away any receipts. When informed that some receipts expose the entire series of sixteen card numbers and expiration dates used to make the purchase, more than half of the respondents expressed concern. 36% said that they are very concerned, 21% said that they are somewhat concerned, 14% said they are just a little concerned, and 21% said that they are not concerned at all.

ONLINE SECURITY

Americans believe the credit and debit card industry is doing a good job in making the Internet a safe place to conduct transactions. According to a recent homepage poll conducted by CardWeb.com, 63% of consumers say the industry is doing a good job, while 16% are not sure and 21% say "no." Americans also find that entering passwords to secure transactions is not a hassle. However, consumers are not convinced that smart card readers connected to personal computers will make the Internet a more secure place to shop. More than 84% say password-enhanced card transactions, such as Verified by VISA, are not a hassle. Only 5% have ever taken advantage of a digital wallet. Slightly less than half of Americans believe a PC smart card reader will improve security. However, 25% are not sure, and 25% say the technology will not help security. Of those surveyed, 56% actively use credit and debit cards online (more than 10 times per month), while 31% used credit cards online between 5 and 10 times per month. Only 53% believe online merchants are doing a good job in protecting their personal information from hackers.

In a related story . . .

The world's largest retailer has jumped on the Verified by VISA bandwagon. Online shoppers visiting Walmart.com can now use the new cardholder authentication service from VISA USA. To sign up for the new service, a cardholder simply registers with his or her participating bank or through VISA's Web site. Registration occurs only once, and no special software is required. After creating a password, a VISA cardholder can shop at all participating online stores. After hitting the "buy" button, the cardholder will be prompted for a Verified by VISA password to confirm his or her identity with the appropriate card-issuing bank. To-date the following banks participate in the VbV program: First USA, Bank of America, Bank One, Chase, Elan, Firstar, SunTrust, Southtrust Bank, U.S. Bank, Wells Fargo, ICBA Members, and CSCU. VISA officially rolled out its "Verified by VISA" service in December although it was first reported by CardFlash in September 2000. For merchants, the new program guarantees they will not be held liable for unauthorized card usage when the cardholder has been authenticated and prevents unauthorized card usage before it occurs, reducing the number of cardholder disputes and chargebacks. For card issuers it reduces chargebacks, unauthorized card usage, and exception item processing system-wide. Acquirers and processors participating include: Certegy, Chase Merchant Services, Fifth Third Bank, First Data, First of Omaha Merchant Processing, Global Payment, National Processing Company, Paymentech, TSYS, and Vital Processing Services.

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