Hidden Fees Are Pocketing Millions from Our MTA Fares Each Month

The MTA is struggling against the Trump administration to maintain its congestion pricing tax collection — yet a significant portion of the nearly $40 million generated monthly in new tolls isn’t enhancing the city’s deteriorating transit system: rather, $1 million is diverted by private payment firms — such as Visa, MasterCard, and banks — that profit substantially from minor transactions.

A little-known oral report from February presented to the MTA board unveiled, for the first time, the magnitude of this previously concealed figure.

Moreover, it’s not only congestion pricing at play: finance companies are taking a considerable share from every subway entry, bus ride, Metro-North ticket, or LIRR pass processed through debit or credit cards — potentially amounting to hundreds of millions annually.

This concern revolves around “interchange fees,” a fee charged for every debit or credit card transaction.

Federal regulations cap these debit-card fees between 22 and 50 cents. However, this fee remains consistent for both high-value purchases and minor “micropayments” — like a subway entry. (Merchant fee pricing on credit cards, which lacks federal regulation, varies widely.)

The MTA’s official budget does not itemize these expenses separately. Due to nondisclosure agreements, it also does not disclose its total interchange fee expenditures.

Nonetheless, during its February board meeting, Chief Financial Officer Jai Patel made a shocking revelation: In the first month of congestion pricing, the MTA incurred $11 million in operating costs, which included $1 million for credit and debit card fees.

This means these seemingly minor costs accumulate significantly — impacting the MTA and transit authorities nationwide.

Under the present payment system, each time riders use their mobile device or bank card to pass through the turnstile, the MTA incurs a fee charge.

If the same ratio of incurred expenses for congestion pricing applies to the overall system, it could lead to an annual cost of $400 million.

The MTA declined to comment on whether this estimate is too low or too high. A senior agency official merely stated that they are “aggressively trying to reduce costs.”

Transit agencies have the freedom to negotiate their arrangements with card issuers, similar to retail operations, as long as they don’t disclose those agreements publicly — which the MTA has inadvertently done, to some extent.

“The MTA has a long-standing merchant agreement and has made efforts in recent years to further negotiate and minimize costs across all transactions, including congestion-pricing tolls,” spokesman Aaron Donovan commented.

In essence, riders must hope that they are receiving a favorable deal — and that the MTA isn’t being outmaneuvered by Visa and its counterparts.

These fees represent a challenge across the nation. They significantly impact every large-city rail system, such as those in Boston, Washington, D.C., and Chicago, in addition to every small bus operator.

However, New Yorkers should be particularly concerned, as they often pay the highest fees. Tolls for bridges and tunnels in this city far exceed those in other locales, and congestion-pricing charges are distinctively instituted in New York. Four out of every ten transit journeys across the U.S. occur on the MTA.

Federal regulations have proven inadequate. The 2010 Dodd-Frank Act included an amendment from Sen. Richard Durbin (D-Ill.) that lowered major banks’ debit-card charges.

However, by still allowing flat fees for “micro” payments, the federal structure severely impacts transit agencies — as well as any retailer dependent on digital micropayments (like parking meters, electric vehicle chargers, and coffee shops).

Kevin Burgess of Bytemark, an international transit fare-collection agency, indicates that the Durbin rule “doesn’t differentiate between merchants with higher average transaction amounts and those accepting a large volume of small transactions.”

Costs associated with card payments in the U.S. significantly exceed those in Canada or the European Union, which operate under different regulations.

Given the rise of digital micropayments, it is time to reevaluate this model. We need to rebalance the profits of banks and payment processors against the fact that they are taking a substantial portion from every $2.90 subway fare.

Transit agencies ought to advocate for reforms. For instance, the MTA could aggregate all congestion and transit charges for each month and pay a percentage of that total, instead of a fee for each toll or swipe.

The Durbin amendment could undergo reforms to lessen fees for transit agencies, other public organizations, and private companies that depend on digital micropayments.

Banks could be encouraged to decrease charges for government-related services.

As an MTA official noted, lowering these costs “is the next frontier of cost containment and affordability. We’re aggressively focused on it.”

Regardless of whether congestion pricing endures, transit payment reform is crucial.

Otherwise, riders’ fares will not fund upgrades and essential maintenance — but simply enrich private financial firms.

Howard Husock is a senior fellow for domestic policy at the American Enterprise Institute. Aaron Klein is the Miriam K. Carliner Chair and senior fellow at the Brookings Institution.