A credit card is placed in a credit card machine to process payments on September 11, 2023 in La Puente, California. A rewards credit card can earn you cash back or free trips on your spending. But rewards cards aren’t the best option for those with credit card debt. (Photo by FREDERIC J. BROWN/AFP via /Keynote USA/Getty Images)
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HARRISBURG – A bill that aims to slightly reduce credit card “usage fees” is advancing quickly in the Pennsylvania House of Representatives. But it faces many difficulties in the state Senate and has generated vehement opposition from banks and credit unions.
Financial institutions say the current system works well and that changing it would create “chaos,” while merchants argue that these fees are an undue burden on both them and their customers.
“There’s a lot of twists and turns on that issue,” said state Senate Majority Leader Joe Pittman, R-Armstrong, noting that his Republican-dominated chamber is unlikely to consider rate changes anytime soon if The measure is approved. the Democratic-controlled state House.
Anyone who has paid for a transaction with a credit card has, knowingly or unknowingly, experienced swipe fees.
When a customer pays a merchant with a credit card, the credit card company charges a “per usage fee.” The rate can range from 1.4% and 3.5% of the transaction cost, depending on the credit card company, including the cost of sales tax, plus an additional flat fee. Lower swipe fees are also charged on debit cards.
The bill in the state House would prevent the fees from being applied to the state sales tax, slightly reducing the overall cost for merchants. It was introduced, approved by a House committee and preliminarily considered on the House floor last week.
Swipe fees are generally among sellers’ largest operating expenses, according to bill supporters. To cover them, companies often raise prices and charge consumers their own swipe fees. He The National Retail Federation has estimated Swipe fees cost the average family $1,000 a year.
While it has been advancing in the House with little fanfare from lawmakers, the bill faced immediate and passionate pushback from banks and credit unions.
Among opponents’ claims: The hotel and air travel industries would collapse due to a decline in points accumulated by airlines, small businesses would be forced to purchase expensive new point-of-sale systems to process the lower fares , and consumers would have to swipe their credit cards twice for any purchase.
However, the financial impact of Pennsylvania’s bill would be limited because it applies to only a small portion of swipe fees. It also includes a provision that would negate the need to update credit processing systems: Credit card companies would be able to refund merchants for the sales tax portion of the fee paid.
Kevin Shivers, executive director of the Pennsylvania Community Bankers Association, said the swipe fees paid by merchants go toward the infrastructure associated with processing credit payments, including security systems.
He estimated the bill would prevent $147 million from going toward banks’ operating costs, but he couldn’t recall how much it costs to operate the system as a whole. He argued that the current system achieves an important balance in the financial world.
“It reminds me of the monorail at Disney World,” Shivers said. “It’s moving payments down the road.”
Proponents of the bill, namely pro-merchant organizations, argue that swipe fees are a barrier to operating a business and say even a small reduction in fees could have an impact.
“They’re just charging a fee on the taxes we collect, and it’s just unfair,” said Alex Baloga, executive director of the Pennsylvania Grocers Association. He noted that food retailers operate on a 1% to 2% profit margin.
Both sides of the debate accuse each other of being beholden to large corporations, and in fact, corporations are on both sides of the debate. Opponents of the measure have the backing of the largest banks and credit card companies in the United States. JPMorgan Chase, Wells Fargo and Mastercard among them — while the proponents include large corporations like Sheetz.
Pennsylvania is not the only state considering this type of measure. Similar legislation It has been introduced throughout the country, including at the federal level. A provision prohibiting transfer fees from being applied to the state sales tax was part of the budget signed by Democratic Illinois Gov. JB Pritzker earlier this month.
Democratic Gov. Josh Shapiro has so far not commented on Pennsylvania’s version of the measure.
“The Governor’s office will continue to review the legislation as the legislative process progresses,” a spokesperson told Spotlight PA on Friday.
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