The Colorado General Assembly has recently introduced a bill that would protect small businesses from dubious credit card swipe fees that are cutting into their profits. The Swipe Fee Fairness and Consumer Safeguards Act seeks to level the playing field for small businesses by putting an end to the practices that allow swipe fees to proliferate unchecked.
Swipe fees are credit card processing fees paid by a merchant’s bank to a cardholder’s bank when a customer uses their card to make a purchase. In 2022, banks took $126 billion from business owners through credit card swipe fees, with these costs being passed on to consumers in the form of higher prices.
“Every penny a restaurant generates in sales is a way to keep our doors open,” said Aileen Riley, owner of Beast and Bottle in Denver. “If this bill were to pass, our small, family-run independent restaurant would save almost $10,000. That money could be used to reinvest in our team and restaurant space.”
The bill would ban credit card networks and big banks from fixing prices on swipe fees, thus freeing small businesses from paying inflated, non-competitive rates. The bill would also end “take-all-cards” requirements, which force small businesses to accept all cards from a bank—even the ones with the highest fees. Additionally, the bill would eliminate high swipe fees on tips and cap the amount of swipe fees allowed on charitable donations, ensuring that more money goes to workers and toward good causes instead of financial middlemen.
The legislation also requires firms to protect customer transaction data, bans extra charges on merchants during a dispute and allows businesses to set reasonable prices for different payment methods without fear of penalties. Importantly, the bill would also allow small businesses to sue credit card networks for their abusive business practices and recover treble damages.
The Colorado bill closely resembles a piece of federal legislation currently proposed in Congress called the Credit Card Competition Act. The CCCA would curb VISA and Mastercard’s duopolies over the credit card market and lower their swipe fees, which are currently 2-4% per transaction on average. The legislation would require large banks to allow merchants to choose from at least two networks as their preferred credit cards, one of which must be a network other than Visa or Mastercard. With more competition from other networks, Visa and Mastercard would be incentivized to decrease their swipe fees to raise demand for their services.
“Like many independent restaurants, we are facing relentless cost increases,” stated Nelson Harvey, owner of the Annette restaurant and Traveling Mercies bar in Aurora. Exorbitant swipe fees have added unnecessary financial strain – “Money that could have gone toward increasing wages, hiring more staff or simply keeping up with rising food and labor costs.”
Banking associations have waged an aggressive campaign against credit card swipe fee reforms. Their advocacy typically centers on an ominous warning that these pro-business, pro-consumer changes would reduce or eliminate rewards programs. The Colorado Springs Gazette featured a guest column from the head of the Colorado Bankers’ Association, Kevin Erickson, stating that lowering swipe fees would significantly slash the amount of revenue banks are able to collect towards funding credit card rewards programs. However, a study on the effects of the Credit Card Competition Act showed that rewards programs would be reduced by less than 1/10th of a percent, leaving banks with slightly narrower profit margins.
Furthermore, low- and moderate-income consumers are paying the brunt of rewards programs that more often than not subsidize wealthier consumers’ travel perks and cash-back credits, among other benefits, which effectively proves to be a model of regressive redistribution of wealth.
“Last year, we paid swipe fees on $1.6 million of pass through income on just tips and taxes alone, which costs us out of pocket over $43,000 on money that is for staff tips and taxes,” said Lauren Roberts, owner of Watercourse Foods. “This bill would allow us to keep our hard earned revenue within our businesses and reinvest in our staff.”
If banking associations truly cared about consumers more than their profit margins, they would support legislation that reduces swipe fees so that small businesses can save costs to improve the quality of their services. With reduced swipe fees, small businesses would retain more of their profits, local economies in Colorado would be strengthened and create a statewide consumer protection framework to hold card networks accountable for questionable business practices.
“Why do these multi-billion dollar credit card companies need to charge us a percentage of employee’s gratuities?” asked Anthony Wheeler, owner of Melting Pot in Littleton. “Why do they get a cut of the taxes we all pay? When will we have someone to support and defend us?”
Lauren Wolters is a Government Affairs Associate with NCRC’s Policy team.
Manan Shah is a Government Affairs Associate with NCRC’s Policy team.
Photo credit: Brett Sayles via Pexels.
