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April 3, 2024

Finance committee approves bill to limit credit card interchange fees


A proposal that would change how fees for electronic sales are calculated received support from Connecticut restaurant owners but pushback from credit union and payment industry groups as it heads to the state House of Representatives for more discussion.

What’s in the bill:

House Bill 5489, which was introduced by the Finance, Revenue and Bonding Committee, would prohibit payment card networks from including sales and use taxes in interchange fees charged to retailers and other companies that accept credit cards.

The bill would essentially require credit card companies to either exclude taxes from their interchange fee calculations, or reimburse businesses for the same amount if they aren’t excluded during fee payments.

Who’s for it:

The Connecticut Restaurant Association said that including taxes when calculating interchange fees unnecessarily inflates the costs to small businesses. 
The association said restaurants in the state are being charged 2% to 4% in interchange fees, while credit card use continues to increase.

“The vast majority of Connecticut restaurants are small businesses, many of them family run – and under current law they are being unfairly penalized with interchange fees on every single electronic transaction at their business,” said Scott Dolch, president and CEO of the Connecticut Restaurant Association. “It’s a growing cost that is becoming increasingly burdensome as more and more consumers shift to cashless payments. That’s why we are here today asking Connecticut legislators for a simple fix: stop banks and card networks from essentially marking up their interchange fees on the backs of Connecticut’s local small businesses.”

Who’s against it:

Both the Credit Union League of Connecticut and Electronic Transactions Association spoke out against the bill, arguing the proposal would force merchants to fully overhaul their payment systems.

They also said that interchange fees are important because they help pay for investment in secure payments technology.

“Unwise governmental intervention with a complicated payment ecosystem, such as a prohibition on collecting interchange on the sales tax portion of electronic payment transactions, threatens innovation and system security, that is funded in part, through the collection of interchange,” said Brian Yates, senior director of state government affairs at the Electronic Transactions Association. “The unworkable nature of the proposal is emphasized by the fact that over 60 similar state legislative proposals to prohibit interchange on the sales tax portion of electronic transactions have been considered between 2006 and 2023 and none have passed their respective state legislature.”

What’s next:

The Finance, Revenue and Bonding Committee this week approved the bill in a 35-16 vote, with some Democrats and Republicans voting in favor and some against. It’s now up to the state House of Representatives to take up the bill for further discussion and a possible vote.

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