Request By:
Mr. Michael E. Caudill
Warren County Attorney
431 1/2 East 10th Street
Bowling Green, Kentucky 42101
Opinion
Opinion By: David L. Armstrong, Attorney General
You have sought our opinion as to the legality of credit cards in connection with the payment of taxes in the sheriff's department; automobile registration and license plates, and other regulated expense items in the county clerk's office; and fines and court costs, child support, bail bonds and other items of expense in the circuit clerk's office.
You detailed the proposed credit card arrangement in your letter:
"The regular credit card transaction involves payment of an interchange fee to the card company and the banks involved. Ordinarily, this charge is built into a merchant's overhead and is transparent to the card user. However, we propose to add this charge to the court related expense to be paid by a person only if he desires to use a credit card as a means of payment. I emphasize to you that we do not intend to require the public to pay court related expenses with credit cards. However, in the event a citizen wants to make a court related payment by credit card, they would pay this interchange fee for the privilege of utilizing this method of payment. The state and/or court would still receive exactly what they would have ordinarily received by way of a cash transaction. The interchange fee would be electronically transferred to the credit card company and/or bank involved. Therefore, I request that you opine as follows: Can the county officers, as set out herein, make available to the public the option of paying court related expenses by use of a credit card, and can they charge the interchange fee to the card user."
The taxes, clerk's fees, fines, court costs, child support, bail bonds, etc., are mentioned in the statutes. They contemplate cash payments when due.
The term cash was defined in Lane v. Railey, 280 Ky. 319, 133 S.W.2d 74 (1939) 78, 79:
"Getting down to the controversial question, it is admitted that the word 'cash' in its ordinary use, and perhaps technical sense, may be said to mean currency, coin, specie, or ready money, 'but also, less strictly bank notes, sight drafts, or demand deposits at a bank.' Websters'. It is synonymous with 'money'."
The term "cash" has been defined by other state appellate courts to include bank demand deposits on hand. Stewart v. Selder, Tex., 473 S.W.2d 3 (1971) 10; and Thompson v. Thompson, Tex., 236 S.W.2d 779 (1951) 790. The Court of Appeals of Arizona, in In Re Estate of Graham, 4 Ariz.App. 193, 419 P.2d 97 (1966) 99, defined "cash" as meaning "ready money" at command, subject to free disposal; not tied up in a fixed state. The court said that it is almost the equivalent of the term "loose money". Thus, the court wrote, cash would include all cash in hand, cash in savings or other banks, or even investments in savings and loan associations when such investments may be withdrawn substantially upon demand. The court also cited the above Kentucky case of Lane v. Railey.
You have furnished us with these additional facts concerning the credit card system proposed:
"As a supplement to my earlier request in regard to whether or not State and County offices in the Warren County Courthouse can accept credit cards for court related services, I hereby provide you with the following information. In the event a credit transaction took place for a courthouse related service on any particular date, I am advised that we, i.e. the county or the state office, would have collected funds in our depository bank no later than the following day. That is, if John Doe used a credit card to purchase a boat registration on Thursday, those funds would be received in the depository bank of our choice the following Friday."
As we understand the proposed credit card system to be made available, on a voluntary basis, to persons who are required to pay their taxes and to pay for various governmental services and items mentioned at the outset, the financial institution extending the credit for the "purchaser" or "taxpayer" will, at the time the services are rendered or the taxes are to be paid, in effect guarantee the governmental office involved that the institution will have the specific money value transferred electronically the following day to the official local deposit account of the governmental office. Such guarantee of transfer of deposit for a specific monetary value and the following day transfer of the money value to the appropriate local governmental deposit account by the financial institution is made possible by a specialized computer device, used by the governmental office, which is integrated into telephonic communication, and making possible these three-way financial transactions, with the credit card being the key in initiating the electronic fund transfer.
In earlier days of our country, it was common to hear the expression "cash on the barrel head." The Persian poet wrote: "Take the cash and let the credit go." However, in the mounting prominence of technology, we are witnessing the expanding of the pragmatic concept of cash as applied to the market and now to the governmental sector, which furnishes services.
CONCLUSION
Even considering that the payment of taxes and various governmental services involves a required payment of cash, it is our opinion that the described credit card system, and electronic fund transfer, so closely approximates the payment of cash, as defined by the Kentucky and other appellate courts, as a matter of common law, as to constitute cash in the pragmatic and legal sense. The significant point is that, at the precise time the taxes are to be paid or there is to be payment for governmental services rendered, the financial institution extending the credit guarantees and validates the transfer of a specific money value to the local governmental deposit account, which actual transfer will take place the following day. We believe such a validation amounts substantially to money in the bank for the government, and thus constitutes cash from the local official's viewpoint. While the proposed credit card plan, as relates to banks as the extenders of credit, would be a credit plan, as described in KRS 287.710 et seq., yet it is our opinion that the system proposed is of such precise validation and subsequent money value transfer as to constitute cash. See Rogers Mortuary Inc. v. White, 92 N.M. 691, 594 P.2d 351 (1979). The credit card system centers around the available bank deposit status of the debtor. Time and cost will not permit an examination of the debtor's assets, except for actual and visible bank deposits. These cases cited above list bank deposits as cash.
The electronic fund transfer described above simply means a transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. Financial instutition includes a state or national bank, a state or federal savings & loan association, and a state or federal credit union. The credit card is used for the purpose of initiating electronic fund transfers, as described above. See 15 U.S.C. § 1693 et seq. For the purpose of making use of such lenders, as mentioned above, we assume that such lenders have complied with any applicable federal and Kentucky law.
The credit card system described above could also include debit credit cards, whereby it could be used by financial institutions to inquire on and deduct funds from a cardmember's demand deposit account (checking account) with which to make purchases of merchandise or services at participating merchants or providers of services. The application of the Federal Electronic Fund Transfer Act requires a prearranged plan and under which periodic recurring transfers are contemplated. Kashanchi v. Texas Commerce Medical Bank N.A. (U.S.C.A. -5, 1983) 703 F.2d 936, 942. Computer technology is still in a rapid, evolutionary stage of development. The definition of "electric fund transfer" in the above mentioned Act was intended to give the Federal Reserve Board flexibility in determining whether new or developing electronic services should be covered by the Act, and, if so, to what extent. In an action involving a consumer's liability for an electric fund transfer, the consumer has the burden of going forward to show an "unauthorized" transfer from his account. In Ognibene v. Citibank, N.A., N.Y. City Cir. Ct., 446 N.Y.S.2d 845 (1981) 847, a transfer was ruled by the New York Court to be unauthorized since: (1) it was initiated by a person other than the consumer and without actual authority to initiate such transfer; (2) the consumer received no benefit from it; and (3) the consumer did not furnish such person with the "card, code or other means of access" to his account.
Aside from the technical question as to whether the subject type of credit card transaction approximates "cash", it is our view that this type of credit transaction, in validating the credit and the electronic transfer of funds to the government's local deposit account, is in harmony with and promotes the underlying public policy contained in the statutes contemplating cash payments for government services, taxes, fines, etc. Such a credit transaction provides a certainty of payment within a short span of time. It is vastly superior to the giving of ordinary checks.
The interchange fee should be borne by the cardmember who gets the government service, especially since he is using his card voluntarily. There is no statutory basis for the government's absorption of it.