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HARRISBURG — A bill that aims to slightly lower credit card “swipe fees” is moving quickly through the Pennsylvania House. But it faces long odds in the state Senate and has drawn 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 these fees are an undue burden on both them and their customers.
“There’s a lot of spin and swirl on that issue,” state Senate Majority Leader Joe Pittman (R., Armstrong) said, noting that changes to the fees are unlikely to be considered by his Republican-dominated chamber any time soon if the measure passes 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 using a credit card, the credit card company charges a “swipe fee.” The fee can range between 1.4% and 3.5% of the transaction’s 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 keep the fees from being applied to the state sales tax, which would slightly lower 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 supporters of the bill. To cover them, businesses often raise prices and charge their own swipe fees to consumers. The National Retail Federation has estimated swipe fees cost the average family $1,000 annually.
While it has been moving through the lower chamber with little fanfare from lawmakers, the bill faced immediate and passionate pushback from banks and credit unions.
Among the claims of opponents: The hotel and air travel industries would crumble because of a decrease in airline points being accrued, small businesses would be forced to purchase expensive new point-of-sales systems to process the smaller fees, and consumers would have to swipe their credit cards twice for any purchase.
However, the financial impact of the Pennsylvania bill would be limited because it applies to only a small portion of the swipe fees. It also includes a provision that would negate the need to update the credit processing systems — credit card companies could refund merchants the portion of the fee paid toward the sales tax.
Kevin Shivers, the CEO of the Pennsylvania Association of Community Bankers, said swipe fees paid by merchants go toward the infrastructure associated with processing credit payments, including security systems.
He estimated that the bill would prevent $147 million from going toward banks’ operational costs, but could not recall how much the system as a whole costs to operate. He maintained that the current system strikes an important balance in the financial world.
“It reminds me of the Monorail at Disney World,” Shivers said. “It’s moving payments around the track.”
Proponents of the bill, namely pro-merchant organizations, argue that the swipe fees are a hurdle to operating a business, and say even a small reduction in fees could be impactful.
“They’re just simply charging a fee on the taxes we’re collecting, and it’s just patently unfair,” said Alex Baloga, the chief executive of the Pennsylvania Food Merchants Association. He noted that food retailers operate on a 1%-2% profit margin.
Both sides of the debate accuse the other of being beholden to large corporations, and indeed, corporations are on both sides of the debate. Opponents of the measure are backed by America’s largest banks and credit card companies — JPMorgan Chase, Wells Fargo, and Mastercard among them — while proponents include large corporations such as Sheetz.
Pennsylvania isn’t the only state considering this kind of measure. Similar legislation has been introduced across the country, including at the federal level. A provision barring swipe fees from being applied to the state sales tax was a part of the budget signed by Democratic Illinois Gov. J.B. Pritzker earlier this month.
Democratic Gov. Josh Shapiro has so far not weighed in on Pennsylvania’s version of the measure.
“The Governor's office will continue to review the legislation as it moves through the legislative process,” a spokesperson told Spotlight PA Friday.