Credit unions take stand against CT interchange fee bill; some retailers show support
HBJ PHOTO | DAVID KRECHEVSKY
The State Capitol in Hartford.
A bill that would prohibit credit and debit card payment networks from including sales and use taxes in so-called interchange fees has drawn strong opposition from credit unions.
Senate Bill 1460 is one of seven bills to be discussed Friday during a public hearing conducted by the state legislature’s Finance, Revenue and Bonding Committee.
The bill, called An Act Concerning Interchange Fees on Electronic Payment Transactions, was raised by the committee.
In testimony submitted in advance of Friday’s hearing, Bruce Adams, president and CEO of the Credit Union League of Connecticut, said the bill “would have an obvious, immediate and detrimental impact on Connecticut’s credit unions.”
Adams states that interchange fees are “negotiated in the private sector, they are paid in the private sector, and they bear no impact on the state’s accounts, budget, or revenues.”
He explains that when a retailer pays an interchange fee, it is paying a private company to allow consumers to use a credit or debit card instead of cash. The consumer is legally obligated to pay both the price of the product or service, as well as any taxes on the purchase. The consumer and retailer agree to let a financial institution advance the money owed to the retailer.
The financial institution pays both the price and the tax to the retailer and then seeks reimbursement from the consumer. The retailer keeps the purchase price and remits the tax it collected to the state.
“But the financial institution bears all the risk if the purchaser does not pay,” Adams states. “The ‘rope-a-dope’ continues with the argument that S.B. 1460 will somehow save consumers’ money. It won’t. The only savings in S.B. 1460 is that it saves the state from having to pay retailers to perform the public function of collecting and remitting tax.”
Adams states the bill “harms credit unions and their members — especially low-income families — by making credit unions pay retailers to perform their mandated state function to collect tax.”
“The proponents of this bill are selling the idea that retailers should not have to pay an additional cost for merely performing their state-mandated duty to collect and remit taxes,” he states. “But if the state mandates retailers to collect taxes, it is the state who should also pay the retailers for that service.”
Instead, he states, the bill has the financial services sector cover the state’s bills.
“While our largest financial institutions may be able to absorb some of this cost, Connecticut’s credit unions and the underserved constituents who depend on them will most certainly suffer,” Adams states.
He added that if the bill passes, “some credit unions will eliminate jobs or stop issuing cards altogether.”
James Higgins, president and CEO of Waterbury-based Skyline Financial Federal Credit Union, also submitted testimony in advance of the hearing and said the bill would create what amounts to a “hidden junk fee” on all consumers in the state.
The bill, he states, “would divert over $52 million annually from the financial services sector to the retail sector, and the state will not see even a penny of this revenue pass through its accounts. This junk fee would burden Connecticut consumers without transparency or accountability, potentially leading to reduced access to credit and banking services.”
Richard Hunt, executive chairman of Electronic Payments Coalition (EPC), which represents more than 30,000 small and large banks and credit unions that issue debit and credit cards, also submitted testimony opposing the bill.
He states that the bill is fundamentally flawed and “attempts to do what has never been done. Similar proposals to prohibit the collection of interchange on the sales tax portion of electronic transactions were considered and rejected in over 30 states over the past 15 years.”
He noted that a similar law in Illinois is the subject of a federal lawsuit in which a judge has issued a preliminary injunction “due to conflicts with the National Bank Act (NBA) and Homeowners Credit Loan Act (HOLA). The decision states that the banking industry is ‘likely to prevail on the merits of their claim’ of federal preemption.”
While credit unions oppose the bill, retailers submitted testimony in support of the legislation.
Among them is Wayne Pesce, president of the Connecticut Food Association, who said the bill would eliminate what is essentially a fee for tax collection.
“Each year, Connecticut’s food retailers — and businesses across the state — collect and remit billions of dollars in sales tax on behalf of the state,” Pesce states. “This is an essential service that businesses perform to ensure the state’s revenue stream remains strong and stable.”
He continued, “Yet, for simply collecting and transferring these funds, businesses are charged over $100 million annually in swipe fees —
fees imposed by credit card networks that apply just to the portion of the transaction that is purely state tax.”
He notes that such fees have “skyrocketed” in recent years, and adds that Connecticut “is one of only a handful of states that does not compensate merchants for performing this critical collection and remittance work.”
He adds, “This bill is a common-sense solution that brings fairness to this process.”
Also on the committee’s agenda for the public hearing is, House Bill 7175, which would establish a farm investment property tax credit and increase the property tax exemption amount of the assessed value of farm machinery.
Paul Larson, president of The Connecticut Farm Bureau Association and a farmer in northeastern Connecticut, submitted testimony in support of the bill.
“The long-term benefits to Connecticut agriculture that this bill provides will go a long way to help insure financial sustainability for many farms, both large and small,” he states.
The committee will also hear testimony on H.B. 7177, which would extend the filing deadline for the estate tax from six months to nine months. If approved, the bill would take effect on July 1, 2025.
The Finance, Revenue and Bonding Committee is scheduled to convene its public hearing on Friday at 11 a.m. in Room 2E of the Legislative Office Building.
Most Recent
Most Recent
0 Comments