The Colorado Senate today narrowly passed legislation to prohibit the collection of interchange fees for sales taxes, with the bill modeled after an Illinois law that has been challenged in court by the American Bankers Association and others.
Colorado senators voted 18-17 to pass the bill (SB26-134). The legislation next heads to the Colorado House, which passed similar legislation last year only to have it killed in the Senate. The proposed law is backed by retailers, who argue it was needed to make up for lost revenue after Colorado eliminated a fee that vendors retained for sales tax collection. The bill would prohibit financial institutions with more than $60 billion in assets from charging interchange fees on sales taxes. It was also amended to mandate that retailers with at least 500 employees use the savings to reduce prices or boost their employee wages and benefits.
The Colorado bill is similar to the Illinois Interchange Fee Prohibition Act, or IFPA, which bans banks, payment networks and other entities from charging or receiving interchange fees on the portion of a debit or credit card transaction attributable to tax or gratuity. ABA, the Illinois Bankers Association and others filed a lawsuit against the IFPA, but a district court judge upheld most of the law in a decision earlier this year. The plaintiffs have appealed the ruling.
The Colorado vote comes a week after the Office of the Comptroller of the Currency announced an interim final rule confirming the longstanding powers under federal law for national banks to charge certain fees. The OCC also issued an interim final order stating that national banks and federal thrifts are neither subject to nor required to comply with IFPA.
“While we’re disappointed in the narrow outcome, what’s more concerning is how this bill was advanced,” said Alison Morgan, director of state government relations for the Colorado Bankers Association. “On multiple occasions, when the votes were there to defeat it, procedural maneuvering and last-minute political pressure changed the trajectory. In fact, during a motion to reconsider, (state) Sen. Julie Gonzales stated that her future legislation was threatened if she did not vote accordingly. That kind of process undermines confidence in the institution and distracts from the real conversation about what’s best for consumers and Colorado’s economy.”
