Friday, October 21, 2011

On Supervisors and the 5% Credit Card Fee

Conspicuously absent from the credit card discussions at the recent Government Audit and Oversight Committee chaired by Supervisor David Campos (photo) was the simple fact that San Francisco's taxi drivers have been given a 24% meter increase  WITHOUT A GATE INCREASE.

This is what you might call the missing context for the debates. There are several things to be said about this.

1. In my 28 year cab driving memory, this is the first time that a gate increase did not accompany a meter increase. They have usually been raised simultaneous. One company I worked for inflated the gates before the meter went up.

2. If you assume that half the cab rides are paid by credit cards (way high) this means the 5% credit card fees = 2.5% of a taxi driver's gross (it's really more like 1% or 2%).

3. This means that the actual gain for drivers with the meter increase of 24% minus the gross credit card fee of 2.5% = 21.5%.

4. I once knew a cab driver who had a $200 ride and did nothing but bitch about how much money he spent for gas on the trip ... Hmmm. This seems like a non sequitur. Why do I think of it now?

Quid Pro Quo

John Lazar, President and General Manager of Luxor Cab, was telling people that not including a gate increase with the meter increase was an oversight and a sign of the incompetence of Deputy Director of Taxi Services Christiane Hayashi.

Nothing could be further from the truth.

The cab companies had been crying about their credit charges to Hayashi so she finally agreed to pass on the charges (at the same percentage as they were passed by most other cities in the country) on the condition that there would be NO GATE INCREASE going along with a meter increase. This was talked about at length and in detail at the Town Hall meetings last spring.

Furthermore, it was clear (to me at least) that the only reason the SFMTA Board did not to include a gate increase was because of the quid pro quo that Hayashi wrote into the legislation. In other words, there would have been a gate increase if credit card charges had not been passed on to drivers.

Let's do a litte more arithmetic.

1. John Lazar wanted an 8% gate increase - on top of the 5%. If this had been granted (and the main reasons that it wasn't were Hayashi's legislation and negotiation skills) 10.5% would have been taken from the 24% making the net raise 13.5%.

2. On the other hand, if the credit card charges had not been passed to the drivers, Lazar and his pals would have been pushing for 10% or 12 % of the gate. This would have worked out to net raises of 12% or 14%.

3. In other words, drivers are between 7% and 10% better off paying 5% credit card charges and having the gates controlled than they are under any other realistic scenario.

Note that I used the word "realistic." Some drivers will say the companies should eat the credit card charges and the drivers should continue with the same (or even lower) gates. Anybody can say anything but, in the world of real politics, that isn't going to happen.

It seems to me that the important factor is the bottom line - how much the drivers take home. And,  in my opinion, we're better off with controlled gates.

Is the 5% Written in Stone?

Of course not.

Hayashi has been trying to find ways to lower that figure almost from the start. The board on the left is from a Town Hall meeting last May when lowering or eliminating credit cards fees was discussed.

 Furthermore, Hayashi is one of the first persons to popularize the use of the Square (with a 2.75% fee) and other similar devices (although there has turned out to be problems with charge backs with some of these apps). And, as she pointed out to the Supervisors, there have been many legal and other changes in the last year that need to be studied that could result in lowered credit card fees.

There also are all kinds of legal, technical and social issues involved. Off the top my head, for instance, allowing cabs not to take credit cards might end up chasing business to Uber and other limo services. In fact, it already has. Having customers pick up the charges could have the same effect. Putting, say, a three dollar surcharge for credit card use might stimulate customers to stiff cab drivers on the tip - and so on.

Sounds like food for some more Town Hall Meetings.

Oh yes - I almost forgot. John Lazar inadvertently tipped his hand when he told the supervisors that he took in $1 million worth of credit card charges and paid out $40,000 every month. That = 4%, not 5%.

Sounds like 1% of wiggle room for Hayashi.


  1. Well done Ed and well said, you have hit the nail squarely on the head once again so keep up the good work, I find your blog so much more educated and factual and to the point, as a 20 year veteran I have no problem with the credit card fee Im not an owner by the way, I cant believe some of the crap that john hann puts out there on his blog and as for that man called Memoud he has the worst mouth that this industry has ever tolerated or listened too.

  2. interesting blog. It would be great if you can provide more details about it. Thanks you

    24 Hours Call Taxi Service

  3. Ed;

    I'm one of the heinous pre-K medallion holders, though in my favor I bought a medallion to guarantee myself a job. I drove from '78 to '83. Criminy, looking at those dates makes me feel like a dinosaur...

    So now I'm far away and dig your blog. It provides a clearer picture of what's going on in the industry than the bland, heavily redacted monthly postcards from my cab company - they read like 1950's Pravda. "Glorious Drivers Fill Many Shifts" "Company Marches Forward".

    There is the usual manager/shareholder problem, as recently displayed in the banking industry. Cab managers really have their own self-interest at heart, as opposed to the public, the drivers, or even the medallion holders. They mainly want to keep the companies big and permanent, with plenty of cash flow for skimming. They buy off the owners with lease money bled from the drivers, punish dissent or inquiries regarding their generous compensation packages in spite of repeated catastrophic business errors. They do provide the service of contibuting to election funds (i.e. bribing) the elected officials, thus ensuring cash flow at the expense of the drivers and the public. Naturally their lies to all parties would make a psychopath blush. The stuff they propose to regulators is always purely for themselves, and only by bizarre logic ascribed to the general good of the public, the drivers, or even the medallion holders. Just a like bunch of Fortune 500 CEO's on a small scale. We call it the American Way.

    Don't tell my fellow owners , but I can see the rational for excluding pre-K owners; it's been like a lottery ticket, and I'm hoping it will put my kids through college, but if ended tomorrow, it's still been an unbelievable run.

    However, aside from my self-interest, excluding pre-K medallion holders may be short-sighted; I'm 64 and in good health. With a little luck it could be twenty years before my medallion is available to the list, if there is a list, and if the guy on the top not too old to drive. Just thinking out loud. Tell the City for me that some of us wouldn't feel put out about putting up 50 g's or an insurance policy so our families would have a little something in the ugly world we're creating.

    Anyhow, keep up the blogging, and thanks for the effort.

  4. Hi,

    Thanks for the good words.

    I am planning on writing more on this subject in a future post.

    Special thanks to anonymous. Your middle paragraph may be the best summation of how the cab companies work that I've ever read.

    I too have mixed feeling on the pre-k's. However, due to the influences the companies exert that you outlined above and the MTA's interest in 15% of sales. I think that they'll be sold in the end. Save your 50,000.

    The Phantom.