… and citizens apparently don’t object.
The City of Cambridge received my $111 car excise tax payment, due March 18, about 12 days late, either because I mailed the check late or it was delayed in processing (I’m not quite sure).
Today in the mail I get a “warrant” where a private collection agency hired by the city wants $27.52 as compensation for this late payment. That’s a 754-percent interest rate. I spoke to an official in the tax department at city hall and she said “we’re required by state law to charge that.”
Credit card issuers tried stuff like this and they ended up getting tangled up in regulations that restricted their abilities. Why aren’t their similar efforts to limit how much local governments can charge when they don’t get their $100 on the date expected?
[Separately, clearing up a situation like this is a lot harder with the government than with banks. Bank employees are typically at work mid-day/mid-week. Whereas I only had about a 25 percent success rate in reaching the government employees that I attempted to contact to find out where and how to pay this.]
And you might ask how badly does the city need the $5.44 that they might net after paying the collection agency (assuming that they do in fact get 100% of the debt)? Cambridge gave its outgoing city manager a $5 million retirement package (story). The current manager, Richard Rossi, was earning $330,000 per year back in 2013 (Boston Globe), plus pension commitments whose ultimate cost cannot be established. So the answer is… pretty badly!
[Update, May 5, 2014: I did a little more research by talking to city officials, including Susan Marcone in the Tax Collector's office. It turns out that what the city really wanted to collect was 44 cents in interest. But by state law they can't simply add this 44 cents to the next property tax bill for my apartment or car. They have to charge some sort of penalty, with a minimum of $5, and they have to use a state-approved collection agency ("Deputy Collector") to assist them. The deputy collector sends out a few letters via an automated system and can collect up to about $100 in fees, but when taxpayers actually pay or have questions they have to deal directly with city employees. Marcone explained that the deputy collectors are people who had a family or personal connection to the Democratic Party here in Massachusetts at least at one time and that nobody new can get into this business, which she characterized as basically 100% profit.]