Legislative maneuvering on interchange

Legislation has emerged in several Upper Midwest states to prohibit card companies from charging interchange on tax payments. Bankers have advocated against the populist bills, and so far none has been implemented, close calls notwithstanding in Illinois and Colorado..The Illinois General Assembly voted to delay by a year implementation of its Interchange Fee Prohibition Act that was to apply to taxes and tips. After being delayed last year, the General Assembly voted June 1 to move the start date back again, this time to July 1, 2027. State lawmakers were reacting, in part, to a U.S. District Court for Northern Illinois judge who backed up an April 24 interim final rule from the Office of the Comptroller of the Currency clarifying the state law would not apply to national banks.Two days later, citing developments in Illinois, Colorado Gov. Jared Polis vetoed a law passed by the legislature to prohibit interchange on taxes.In other states, including Minnesota and Iowa, similar legislation died without a hearing or advancing. In Iowa, a think tank called the Common Sense Institute, published a thorough study describing the likely results of a law prohibiting interchange fees on taxes. While advocates for the legislation argue merchants and consumers would reap significant savings, CSI says only a few large retailers would benefit. It estimates that 8.5 percent of retailers would realize 65 percent of the savings. And while it is true $36.2 million in interchange could be saved in a year by excluding tax payments, $82 million would need to be spent for retailers to install the software and otherwise gear up for such a law. And that’s just the tip of the iceberg. CSI financial modeling suggests that in the first year, such a law would cost the state 350 jobs, $26 million in personal income, and $42 million in GDP.While suppressed for now, efforts to exempt taxes and/or tips from interchange fees—not to mention broader price-fixing laws—on card payments are likely to re-emerge. Bankers should remain vigilant about fighting them. The cost of combatting card-related fraud is growing. Now is not the time to reduce the sources of funding that sustain the industry’s fraud prevention efforts.