Colorado governor vetoes interchange bill

Chalk one up for the merchant acquiring business. Colorado Governor Jared Polis vetoed a bill that would have prohibited interchange on the tax portion of card payments, drawing the ire of merchants and praise from the banking industry.

"Since similar legislation came up last year, I have been open to the core concept in this bill and the problem it is trying to solve," the governor wrote in a letter to state lawmakers. "[T]he credit card industry is ripe for disruption, and there is far too much friction in our transaction ecosystem. I would support addressing these issues at a national level, while at the state level we should facilitate new financial technologies that provide consumers and businesses with better and more innovative financial products."

"We welcome Governor Polis' decision to veto this legislation and spare Colorado consumers and businesses from the payment chaos it would have unleashed – while also sparing the state from a costly and uphill legal battle," Rob Nichols, president and CEO of the American Bankers Association wrote in a statement. The governor's action, as well as a federal court ruling earlier in Illinois this week, should send a clear message to any other state contemplating similar legislation that it is a mistake."

A federal district court judge in Chicago permanently enjoined Illinois from enforcing a law that would have exempted the tip and sales tax portion of card payments from interchange. The ruling applies to national banks, out-of-state state-chartered banks, federal savings associations and payment networks.

However, it does not apply to banks chartered by the state of Illinois or to credit unions. Both credit unions and state banks chartered by Illinois are planning appeals, as are retailers.

In his letter to lawmakers, Polis raised the specter of a costly, drawn-out legal battle if the law were signed into effect. "Even if the bill were to survive legal scrutiny and go into effect in our state, it is questionable whether this bill is fully implementable or operationally feasibly. This would be a Colorado-specific carve-out to the national and global integrated payments system and it is unclear to me how the state would implement it," Polis wrote.

Retailers balk

The Merchants Payments Coalition panned the governor's decision. "It is unfortunate to see the will of the people of Colorado blocked at the finish line when affordability is a key issue for people," MPC Executive Committee Member and General Counsel of the National Association of Convenience Stores Doug Kantor stated. "Colorado legislators stood up for small businesses and consumers, but this veto leaves them stuck paying inflated, price-fixed swipe fees not just on their purchases but on top of sales tax, too."

But Polis, in his letter, suggested the savings wouldn't be significant. "Based on a combined average sales tax of roughly 8 percent [the bill] if it ever went into effect would save merchants roughly 0.13 percent of the gross total of a purchase. Other policies could provide and more better-targeted relief without the substantial legal risks and delayed timeline this bill entails," he wrote.

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