What bill could the Colorado State Legislature be cooking up that has the far right and the far left singing Kumbaya?
House Bill 15-1154 is doing just that, bringing both sides of the aisle to the aid of small business. Here is what the Denver Post has to say about it.
When a patron uses their credit card, the merchant is charged an “interchange fee” by their bank. Generally, larger merchants negotiate a lower rate than smaller merchants — a volume discount, if you will. Let’s call the average interchange fee 2% of the amount purchased.
As an example, if the purchase price for some coffee and pastries at my local coffee shop is $10, the coffee shop owner would pay 2% to their bank, or 20 cents. Seems like a reasonable fee to pay to the bank for processing the card.
House Bill 15-1154 says that’s not what’s actually happening.
In our example of the $10 coffee and pastries, there is also sales tax, let’s call it 7% for a total of $10.70. The banks actually charge the 2% fee on $10.70, not $10. Now, the extra couple of pennies might not seem like a lot in this small example, but the coffee shop owner is selling a lot more that just $10. If their annual sales are $1 million, that would be an extra $1,400 in fees they are paying on the tax.
These merchants are required to collect the sales tax, and remit it to the government. Does it seem reasonable that a small business owner should pay a fee on that tax?
Big companies can negotiate for lower fees to offset this, but the little guys usually can’t. I called a few small merchants in my town to ask if they were charged the interchange fee before or after sales tax. None of them were aware of this fee on the sales tax.
Are there more free-market solutions to this problem? It would be far preferable if the banks acknowledge on their own that this doesn’t seem like a fair way to price interchange fees for small merchants. Let’s see if this bill helps them see the error of their ways.