Colorado lawmakers pass interchange bill

Legislation banning interchange on the sales tax component of credit and debit card payments was approved by Colorado lawmakers and sent to the governor's office for final approval.

Meanwhile, a federal appeals court has said a lower court decision upholding a similar law in Illinois needs to be reconsidered.

Passage of SB26-134 by Colorado lawmakers applies to credit card issuers with over $60 billion in assets. It comes on the heels of a ruling by the Office of the Comptroller of the Currency—the primary regulator of large national banks—that asserts federal law preempts such state laws.

The OCC's ruling was directed at an Illinois law, set to take effect on July 1, 2026, that would prohibit interchange on the tax or tip amounts of transactions. At least a dozen other states have similar laws under consideration.

Illinois law sent back to lower court

The OCC was one of several parties to urge a federal district court to reject the Illinois Interchange Fee Prohibition Act, but the court upheld the law last year. However, the Seventh Circuit U.S. Court of Appeals on May 8 sent the case back to the district court for reconsideration in light of the OCC's ruling.

In the case of the legislation passed by Colorado lawmakers, the bill states, "a merchant, consumer or other person that is injured as a result of the violation [of the law] may bring a civil action against the payment card network." And if they prevail, they would be entitled to refunds of interchange paid on tax amounts, as well as statutory damages of $500, plus attorneys fees and costs.

Savings go to customers or employees

The Colorado bill, one of the most heavily lobbied bills in the current legislative session according to local reporting, also states that any retailer with more than 500 employees statewide must apply savings resulting from the law to reduce prices, invest in employee wages or both.

"We are passing this bill to save small businesses and restaurants thousands of dollars that they can use to grow their business, lower costs or increase workers' wages," said Julie McCluskie, speaker of the Colorado House and a sponsor of the bill. McCluskie, a Democrat, said the interchange collected on sales tax can amount to thousands of dollars a year. "This simple bill will help businesses and workers thrive and create opportunities for small retailers to compete and succeed," she said.

"Every dollar matters for a small business, which is why I am sponsoring this legislation to eliminate swipe fees on sales tax," said Monica Duran, the democratic majority leader of the Colorado House of Representatives. Asserting the fees could amount to thousands of dollars per business, Duran said "That is money that could go to paying rent, making payroll and combating rising costs. Our bill puts an end to swipe fees on sales tax to save Colorado businesses money and help local economies thrive."

Industry leaders consider Colorado bill misguided

The Electronic Payments Coalition, which represents credit unions, community banks, payment networks, and financial institutions, issued a statement on May 8, urging Colorado Governor Jared Polis to veto the bill.

"In Illinois, the Court of Appeals rightly recognized what the top federal banking regulator, the Office of the Comptroller of the Currency, has said from the beginning: states cannot impose commerce-disrupting requirements on the national payments system," said EPC Executive Chairman Richard Hunt. "These state interchange laws are unworkable, disruptive, economically damaging and a recipe for confusion for consumers, small businesses, community banks and credit unions."

Scott Talbott, ETA CPP and executive vice president of the prominent Electronic Transactions Association, concurred, stating, "Given the harm to consumers and small business, the high costs and immense challenges of implementation, the threat to innovation, the ongoing legal battles, and the OCC's rules declaring these types of laws invalid, the Colorado bill is just bad policy."

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