Interchange fees again take stage during session

By Amy Heaslet, Executive Vice President/General Counsel, Tennessee Bankers Association

If bankers were asked to name one legislative success they’d like achieve during their career, the majority would likely say “taxation of credit unions.” If Tennessee retailers, namely grocers and operators of fuel and convenience stores, were asked the same question, they would say “reduction of interchange fees.” This issue has become a priority issue for retailers at the state level in recent years and is brought with as much passion as bankers who argue for equal treatment of credit unions.

For the second year in a row, retailers filed legislation to prohibit interchange fees from being charged on the sales tax portion of retail transactions. This put TBA as the central point of defense given the negative impact this would have on every bank in Tennessee; however, it was a coalition effort including credit unions and card networks that worked to successfully fend it off this year.

The strength of the retailers’ grassroots advocacy was a near equal match with the financial institutions’ lobbying against the interchange bill, but in the end, bankers’ outreach to their legislators tipped the scales toward defeating the legislation. In fact, we heard directly from some legislators that they changed their position to opposition after hearing from their local bankers.

In addition to the grassroots by bankers who helped achieve enough opposition in the Senate and House to force the retailers to defer the legislation to next year, we also received favorable reaction to several of our talking points. One of the points that most resonated with lawmakers was that the technology to implement the legislation does not currently exist. As it stands now, at the point-of-sale, the payments system recognizes only the amount of the total transaction and the technology does not currently exist to segregate the tax from the purchase price.

Additionally, legislators were also receptive to the benefits retailers receive by accepting electronic payments. For example, compared with cash or check, electronic transactions are more efficient, generate higher sales volumes, and bring guaranteed, real-time payment to the retailers.

Another critical point was that in the instance of fraud, the consumer’s financial institution bears the cost burden and the retailer is made whole, including the sales tax amount.

These talking points made for persuasive conversations with lawmakers, but there is also a great deal of empathy for the retailers’ position and it was not an easy task to garner enough opposition to defer the bill. Despite the lack of technology and costs for financial institutions associated with providing electronic payments, the question of “should retailers pay the interchange fee on the full amount of sales tax that they fully remit to the state” struck a chord with some members who would have supported the legislation if it had been presented for a vote.

For retailers, they see interchange as a direct hit on their bottom line. For the associations representing these retailers, they will continue bringing this legislation each year and their grassroots efforts will remain strong.

Fortunately for the banking industry, we’re in a more favorable position because we are advocating for the status quo—much like credit unions advocate for the status quo on their tax exemption. But we must continue our outreach to legislators on this issue when session ends if we expect to continue defeating the retailers’ efforts. Power in numbers will help win this fight and with retailers across the state advocating for this legislation, we must have an equal force of bankers in opposition. 

When you see your legislators and they ask what they can do for you and your bank, please urge them to oppose any efforts to limit interchange fees. Given the complexities of the payments system, education on electronic payments, including the importance of interchange fees to financial institutions, will be very helpful. To all of the bankers who have already reached out to their lawmakers about this, thank you! Your efforts are why we were successful this year.

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