This story was produced as part of the Colorado Capitol News Alliance. It first appeared at cpr.org.
A proposal to reduce credit card swipe fees has whipped up a frothy, multi-million-dollar lobbying fight at the State Capitol this year, pitting the banking industry against retailers, restaurants and other businesses. It passed the legislature Wednesday and now heads to the governor’s desk.
Senate Bill 26-134 concerns the interchange fees, or swipe fees, that merchants pay to the banks every time a customer pays with a credit card. Currently, those fees are calculated as a percentage of the total charge, sales tax and all. The proposal, which passed the House on a 44-20 vote, would remove sales taxes from the equation, basing swipe fees only on the underlying purchase.
“When a merchant takes a credit card from a consumer and processes that card, they should not have to pay fees on the local or state taxes that they are collecting from that customer,” said Democratic House Speaker Julie McCluskie of Dillon, a main sponsor of the bill.
“They will continue to pay a swipe fee on the bulk of the purchase, whether it was a meal, a new coat, a pair of shoes, but they will not have to pay an interchange fee any longer on the taxes they collect,” McCluskie said, adding that the measure will help struggling local businesses, saving them thousands of dollars each year on credit card fees.
The restaurant and retail industries have lined up to support the legislation, saying it will provide economic relief to small businesses without raising prices for consumers.
“Restaurants have been begging our legislature and the governor for financial relief for years, and this bill would provide them with real savings,” said Sonia Riggs, President and CEO, Colorado Restaurant Association.
Backers also point to a moral case for the proposal.
“If a community wants to raise sales taxes to support affordable housing or a new fire station or mental health facility, that should not mean increased profits for credit card companies and smaller profits for businesses in that community,” said Joshua Mantel, director of government affairs for the Bell Policy Center, testifying at a committee hearing in support of the proposal.
But the banking industry is pushing back hard against a bill that would cut into their profits. They point to a related Illinois law now entangled in litigation and say a similar legal morass would unfold in Colorado should the bill be signed into law here. They also argue it would be too complicated to alter their nationwide payment systems to isolate sales tax out of swipe fees in just one state.
“Colorado represents only roughly 2% of the transactions nationwide,” said Jenifer Waller, CEO of the Colorado Bankers Association. “It's the expense of changing that system that's really prompting our opposition.”
The banks just might decline to make that investment altogether, Waller said, which would create a confusing and inconvenient situation in Colorado.
“The impact to consumers would be potentially two transactions for each purchase that has tax,” Waller said. “One to pay for the tax in cash, one to put the main transaction on your card.”
The specter of that scenario has been repeated in online ads paid for by the Electronic Payments Coalition, a banking industry group. In March, that organization spent a staggering $4.5 million on online advertising, including more than $600,000 on Facebook and Instagram to drum up popular opposition to the bill, according to publicly available data from the platforms’ parent company, Meta.
Opponents also note that since credit card rewards are largely funded through swipe fees, those popular programs would be affected.
“Banks would be forced to slash reward programs on their credit cards,” said Chris Sununu, president and CEO of Airlines for America, an industry group opposing the bill. “Those points programs, whether they have to do with airlines or hotels, those are now all at risk.”
So far, Gov. Jared Polis has kept his intentions close to the vest.
“The Governor will review the final version of the bill, including all amendments if it reaches his desk, while considering the impact of national regulations,” said spokesperson Eric Maruyama in an emailed statement.
But that hasn’t stopped the banking industry from taking their concerns to his office door. Waller confirmed that her group will seek a meeting with the governor in a last-ditch effort to sway him toward a veto.
A similar bill seeking broader limits on swipe fees was defeated in a Senate committee hearing last year.
Goliath vs. Goliath?
Some opponents have argued that the big box stores, not local mom and pop ventures, stand to reap the lion’s share of the proposal’s economic benefits. Indeed, lobbying support from retail giants Walmart and Target has raised eyebrows and fed suggestions that it all boils down to Big Banking versus Big Retail.
But small business owners like Mas Torito, whose family owns Kokoro, a pair of fast casual Japanese restaurants in the Denver metro area, say they’re the ones asking for the legislation. Between his two locations, Torito expects the measure could save his business about $20,000 a year in fees.
“That's a part-time employee. That's an extra piece of kitchen equipment,” Torito said. “Yes, your big box operators will benefit. But people use their credit cards at every business that they go to, whether it's for retail shopping or restaurants. So all of us stand to benefit.”
