HARTFORD, Conn.–Credit unions in this state are expressing strong opposition to a bill that would prohibit credit and debit card payment networks from including sales and use taxes in interchange fees, an issue that has drawn concern from financial institutions in state capitals across the country.
Senate Bill 1460 was one of seven bills discussed 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, according to the Hartford Business Journal.
League CEO Submits Testimony
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,” the Business Journal reported.
Adams stated 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.”
According to the report, Adams further explained 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 Business Journal reported. “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.”
Fi ‘Bears all the Risk’
“But the financial institution bears all the risk if the purchaser does not pay,” Adams stated. “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.”
According to the Business Journal, Adams further stated that 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,” Adams was quoted as saying. “But if the state mandates retailers to collect taxes, it is the state who should also pay the retailers for that service.
‘Most Certainly Suffer’
“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 continued, adding 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, according to the Business Journal.
