Imposes sanctions for credit card charge backs on motor vehicle fees

BILL NUMBER:S4245

Title of bill

An act to amend the vehicle and traffic law, in relation to sanctions for credit card charge backs on motor vehicle fees

Purpose of the Bill:

This bill would authorize the Department of Motor Vehicles (DMV) to impose sanctions against persons who pay for fees with a credit card and thereafter use the card "charge back" system to avoid payment.

Summary of Provisions:

Section one of the bill would amend Vehicle and Traffic Law (VTL) 202-b by providing for possible suspension of a customer's driver's license and/or registration when the fee for those documents was paid by credit card and the customer subsequently contests the credit card charge such that the fee is charged back to DMV. The customer would be given time to make payment prior to the suspension taking effect.

Section two of the bill would provide that the law becomes effective in 120 days. Existing Law:

VTL § 202-b currently authorizes DMV to impose a penalty and suspend licenses and registrations only for dishonored checks.

Prior Legislative History:

This proposal was introduced as S. 4918 in 2003 and passed the Senate in 2003 and 2004.

Statement in Support:

DMV has experienced an increase in a relatively new type of fraudulent activity associated with credit card transactions. A customer will pay a license or registration fee with a credit card and then illegitimately contest the charge with the customer's credit card company to obtain a "charge back." By requesting a charge back for a valid DMV charge, these customers are able to obtain a valid license or registration that they have not paid for.

While VTL § 202-b currently allows DMV to suspend the license or registration of a customer whose check is dishonored, there is no similar mechanism for those who defraud DMV by illegitimately requesting a charge back on their credit card transaction. The same safeguards applicable to dishonored checks would apply to charge backs. Before the suspension would take effect, DMV would notify the customer in writing that a fee is due. The customer would have 30 days from notification within which to make the payment to DMV to avoid suspension.

Both the volume of charge backs and the dollar amount per charged back transaction have been increasing. DMV anticipates that this trend will continue as the range of transactions payable by credit card expands, and especially as additional internet transactions are offered. In fiscal year 2010-11, DMV received an average of 100 chargeback

requests per month from credit card issuers. DMV was able to recover only 50% of the unpaid fees associated with credit card charge backs ($158,457 out of $306,898). In addition to this lost revenue, DMV has incurred additional expenses because credit card companies may charge $10.00 per charge back.

Budget Implications:

By imposing sanctions, this bill will increase revenue to the State by reducing the number of unpaid transaction fees for driver's licenses and registrations.

Local Impact:

None.

Effective Date

This act shall take effect 120 days after becoming law.