BOSTON– A representative of America’s Credit Unions urged a commission to reject a proposal that would prohibit credit card issuers from collecting interchange fees on the tax and gratuity portions of transactions, warning the measure could create new compliance burdens and increase operational risks for financial institutions and consumers alike.
Testifying before the Massachusetts Special Commission reviewing the proposal, America’s Credit Unions Senior State Policy Coordinator Alex Vereen said the legislation would impose significant new administrative and technological demands on credit unions and payment systems.
“The tax and tip interchange proposal is not a simple spreadsheet adjustment,” Vereen told the commission. “It would create a new compliance process across card processors, core providers, statement vendors, dispute platforms, merchant systems, and data files that credit unions do not control.”
What’s Being Proposed
The proposed legislation, including measures identified as Senate Bill 688 and SD762, would prohibit financial institutions from charging interchange fees on the tax or gratuity portions of electronic payment transactions. Merchants that document the tax or tip amounts would be exempt from paying interchange fees on those portions of a transaction. Merchants would also have up to 180 days to submit documentation and request refunds for interchange fees already collected on taxes or gratuities.
Violations of the proposed law could result in fines of $1,000 per transaction, according to the legislation.
The proposal mirrors the Illinois Interchange Fee Prohibition Act and similar legislation currently awaiting action from the governor in Colorado.
Vereen said the bill could require credit unions to identify covered transactions, verify merchant documentation, process credits and maintain records for audits, disputes and enforcement actions.
Helps Keep Programs ‘Affordable’
“Interchange revenue helps credit unions keep card programs affordable and return value to members through lower fees, better services, and fraud protection,” Vereen said. “Any monetary penalties levied on credit unions could create safety and soundness concerns.”
“I respectfully urge the Commission to avoid recommendations that create new tax and gratuity data mandates…retroactive refund systems…statement disclosures…and per transaction penalties,” Vereen continued. “Massachusetts can support small businesses without shifting new costs and risk back onto local community financial institutions, members, and the payment systems they rely on.”
Vereen urged the commission to avoid recommendations that would create “new tax and gratuity data mandates, retroactive refund systems, statement disclosures and per-transaction penalties.”
What Supporters Say
Supporters of the legislation have argued the measure would reduce costs for merchants and consumers by eliminating interchange fees on taxes and tips. The proposal is part of a broader effort in Massachusetts to address payment card fees and merchant transparency.
The Massachusetts Bankers Association has also opposed the legislation, arguing that interchange fee restrictions could disrupt the electronic payments system and shift costs elsewhere in the marketplace.
