throughout the country, Visa and MasterCard have their work cut out in achieving credit card acceptance. The potential credit card market for local governments is conservatively estimated in the billions of dollars. Few have made credit card acceptance arrangements, including Arlington County, Bowling Green, Ky.; Pontiac, Mich.; Huntsville, Ala.; and East Hartford, Conn., according to Visa. In 1985, Arlington County became one of the first municipalities to allow residents to pay their taxes with credit cards. Cardholders were initially charged a 1.51% user's fee, which was changed to a flat rate of $1.25 per transaction to cover the discount rate charged to the local government. Paul Forte, the deputy treasurer of Arlington County, Va., has been an outspoken critic of the two credit card associations' joint demand that governments accepting cards for tax payments absorb the discount fees. And Mr. Forte's boss, county treasurer Francis X. O'Leary, has been equally harsh, blasting Visa and MasterCard's stand at the POS Today conference in Dallas last month. "We don't feel that the rest of the population should subsidize credit card users," said Mr. Forte last Wednesday at a luncheon in Manhattan hosted by the Electronic Banking Economics Society. "Credit cards represented a convenience for our citizens," said Mr. Forte. "They allowed taxes to be paid on time and reduced tax delinquency." When Arlington County hiked the surcharge for using Visa and MasterCard to 1.99% in April 1994, Mr. Forte said there was a decline in payments made with the two big bank card brands. Several months earlier, the county began accepting the Discover card, with cardholders paying $1 for transactions of less than $200 and $2 for transactions of $200 or more. According to Yvonne DeCicco, Discover's vice president of government relations, it was Arlington County that made the first move in their relationship. "As a result of them seeking us out, and as a result of the demand that we had, we entered into the agreement," Ms. DeCicco said. She added that Discover had received no complaints about its surcharge. Consumers "understand that government service is different from regular companies," she said. "For the added convenience they get it's worth it." When Arlington County resisted pressure from Visa and MasterCard officials to drop the surcharge, both associations jointly decided last February to end their relationships with the municipality. Why did both associations wait so many years to react to the surcharges? Sandra Stairs, a Visa spokeswoman, said that Visa wasn't aware of the practice. "We did not become aware that they were doing that until late 1993 or early 1994," Ms. Stairs said. "The relationship was between cardholders and their bank. If we don't receive complaints, then we have no way of knowing what's going on." Visa gave Arlington County a one-year grace period to lower or phase out the fees. "We agreed we couldn't cut them off immediately, so we set up the pilot," Ms. Stairs said. "We canceled the relationship when we found they had made no effort to meet these guidelines." MasterCard and Visa remain firm in their stand against surcharges. "We don't think consumers who use credit cards should be singled out for an additional tax in the form of a surcharge," said William Binzel, vice president of governmental relations in MasterCard's Washington, D.C., office. "Our operating rules prohibit merchants from putting a surcharge on credit card transactions." Armen Khachadourian, senior vice president for Visa U.S.A. merchant relations, concurred. "Visa prohibits merchants, which include governments and government agencies, from adding surcharges," Mr. Khachadourian said. He pointed out there are costs involved in all payment types, and it is discriminatory to single out credit cards. Mr. Forte, however, remains unapologetic. He cited three reasons why his government should not absorb discount fees: The law requires collection of the full tax that is due, government subsidy of credit card users is unsound, and the cost magnitude is fiscally unacceptable. "We are not Macy's. We are a government," said Mr. Forte. "We don't have the ability to adjust tax bills because some people use credit cards. If someone's tax bill is $1,000, we are obligated to get $1,000 from them." He added that Arlington County could not accept something in the range of a 2% discount fee. A legislative remedy favored by Arlington County has hit an impasse in Congress. HR 1169, which stipulates that "a card issuer shall not prohibit or otherwise limit the ability of federal, state, or local governmental agencies to assess and collect from the user of a credit card issued by the card issuer a fee for honoring the credit card," is considered highly unlikely to pass the Republican-controlled Congress. "We felt it was much too broadly worded," said Ruth Susswein, executive director of Bankcard Holders of America in Herndon, Va. "Overall, our position has always been that using a credit card incurs cost, just as cash and checks do. To require the cardholder to bear the brunt of these costs and not do the same with other payment options doesn't seem like the right choice," she said. Ms. Susswein allowed that "there could be some room for compromise" and did not rule out some form of fee limited to mandatory payments. The credit card associations, not surprisingly, have lobbied hard against HR 1169. "They want to put the government in the position of saying, we want to come to Visa and MasterCard, we want to use your services, but we don't like the terms and conditions, which are the same that everyone else has to deal with," said Mr. Binzel. "We say, fine, then don't use our product, so they say they'll use the power of law to change our rules." Just who would want to use credit cards to pay their taxes? Well, lots of people, according to Mr. Forte. He divided those people into two groups: the "totally inept," or those who live from paycheck to paycheck and have problems meeting their bills, and the "fiscally sophisticated," or those who pay their entire balance on time and earn rewards for money spent on their cards. "We're not in the business of deciding how people should conduct their personal finances," said Mr. Forte. "If someone wants to put their taxes on their credit card and pay interest premiums monthly, that's their business."

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