Why Cab Drivers Hate Credit Cards, Christmas Edition

Why Cab Drivers Hate Credit Cards, Christmas Edition

Back in early June we wrote about a Nevada Senate bill that was intended to collect $400,000 every six months from taxi companies operating in Clark County, which includes Las Vegas. The cab drivers of the nation’s casino capital were being penalized for charging additional $3 to customers who were paying their fares using a credit or debit card. At about the same time, San Francisco cab drivers were out in force protesting in the streets against a five-percent fee they were being charged for each card payment they accepted. Here in Boston last year taxi owners sued the city for $1 million over the requirement prohibiting them to operate their cabs, unless their point-of-sale (POS) terminal was operational.

The list goes on and I could add to it a clever ploy used by NYC cab drivers to “suggest” to customers that 30 percent is the “reasonable” tip rate for credit card payments. But the point is clear: cab drivers really, really don’t like credit cards (or debit cards, for that matter). I’ve been told that in person more than once and I’m sure many of you have heard it as well.

Well, this morning I read about the most recent development on that front. This one comes from Chicago, where taxi operators have “quietly” filed a proposal, which, among other things like penalizing riders for vomiting, aims to reimburse cab drivers for the expense of accepting bank cards, the Sun-Times tells us. I think that this latest expression of the taxi world’s displeasure with credit cards merits a revisit of the contentious subject.

What Do Chicago’s Cabbies Want?

The Sun-Times reports that cab drivers have filed a petition with the Chicago City Council, requesting that fares are raised by 22 percent and that a $1.50 charge is assessed to customers using bank cards for payment, the euphemistically called “convenience fee.” There is more:

Cabbies also want the city to impose a $1 fee for every additional passenger, a $50 fee for fraudulent credit card transactions and a $75 “cleanup fee” for inebriated passengers who lose their lunch in the back of a cab.

We are not told precisely who is to be assessed with the proposed $50 credit card fraud fee. After all, the passenger who fraudulently used the card is unlikely to be convinced to make good on his debt, not least because he is unlikely to be found. The authentic cardholder can hardly be expected to cover the loss either, so I really wish the newspaper gave us more details on that. But let’s take a look at the convenience fee.

The Convenience Fee Issue

So why do Chicago cabbies want to charge a convenience fee? The Sun-Times:

Budzynski [cabdriver Thaddeus Budzynski is the lead petitioner] justified the credit card fee on grounds that drivers who accept plastic get charged a 5 percent processing fee and lose time and fares doing it.

OK, a five percent card processing rate is truly exorbitant and cab drivers have every right to feel cheated and seek to be compensated for it. However, the focus of their outrage is misplaced and it is not their customers who should be footing the bill. Let me explain.

The typical rate for a card transaction processed at a taxi would hover around 1.7 percent plus $0.20 for credit cards, give or take, and could be lower for debit cards. That is what the payment processor would charge the cab company. However, the cab company charges its drivers five percent for the same transactions, as Budzynski testifies and as the SFGate reported earlier this year. The difference is collected by the cab company as profit. So it doesn’t seem right that the customer should be asked to pay for the cab company’s surcharge.

The Takeaway

Back in June we wrote that the five percent issue “is a case of self-inflicted pain” for the taxi industry. It is truly outrageous that cab drivers should be charged such a high card acceptance rate, right on par with semi-legal businesses that can only take cards through offshore processors, because no U.S. provider would work with them. Yet, the exorbitant fees are not their customers’ fault and the drivers should bring themselves to confront the real culprit here — the cab companies.

Image credit: Wikimedia Commons.

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