“At a time when hardworking Texans rely on credit unions for affordable loans and financial guidance, these measures would only benefit big banks and special interests – at the expense of Main Street"
Texas Insider Report: AUSTIN, Texas – You may have seen news from a group calling themselves "Texans Against Hidden Credit Card Fees." The group is pushing for a proposal to overhaul the way credit cards are processed in Texas to benefit large retailers like Walmart and Home Depot. But consumer advocates and small businesses say the proposal would save large retailers millions, while forcing customers to pay sales tax and tips in cash or check.
Similar bills have been considered – and rejected in 30 states over the past 17 years.
Their plan to carve out sales tax and tips from every credit card purchase may save large store millions – but smaller family-owned stores would be faced with the unexpected expense of having to pay to create entirely new payment system that would "save" them just $21 a month. “At a time when hardworking Texans rely on credit unions for affordable loans and financial guidance, these measures would only benefit big banks and special interests – at the expense of Main Street," said Caroline Willard, President & CEO of the Cornerstone League.
- READ MORE: Americans Owe Record $1.08 Trillion in Credit Card Debt, More Find Themselves in 'Persistent Debt'
- With most American consumers already burdened by years of inflation & price hikes – particularly for food, gas & housing – more credit cardholders are carrying debt forward... or falling behind on payments.
A federal court recently blocked a similar law in Illinois that the Chicago Tribune described as “credit card chaos” and the Office of the Comptroller of the Currency called "ill-conceived," "largely unworkable," and "bad policy" that would create a "fractured payment system" and lead to "higher fees, reduced services, and weakened fraud protection."
Small businesses, credit unions and community banks are pushing back against a proposal by big box stores to dramatically change the way credit cards are processed in Texas – a move that will hurt small businesses.
Both Senate Bill 2026 and House Bill 4124 would carve out portions of every purchase from overall credit card processing costs – potentially forcing customers to pay sales tax and tips in cash or check.
Small businesses are sounding the alarm because this change will save stores like Walmart and Home Depot tens of millions of dollars, while the average small business would save about $21 a month and would be forced to implement a completely new way to process credit cards.“Carving out sales tax and tips from every credit card transaction would create chaos for small businesses like mine – and cost me money," said Donna Finley, owner of Casa Thomas, The Shack Grill and Austin Hall in Nacogdoches Texas.
"Bad ideas like this fail to take into account the realities of running a small business, and could harm 100s of local restaurants, shops and service providers across Texas.
"Lawmakers must protect the small businesses that keep our communities strong – not put more obstacles in our way,” Finley said.
Credit card processing fees have remained flat at 2.2% for over a decade. Increased credit card processing costs could be the result of increased retailer revenue, according to the Electronic Payments Coalition.
“This legislation poses a serious threat to the financial well-being of Texas consumers and the credit unions that serve them. These bills would disrupt the fair and balanced financial ecosystem by limiting credit unions' ability to offer competitive, member-focused services,” said the Cornerstone League's Willard.
"We urge lawmakers to stand with credit unions and the millions of members who depend on them."
The U.S. Office of the Comptroller of the Currency characterized the Illinois law as an “ill conceived, highly unusual, and largely unworkable state law that threatens to fragment and disrupt this efficient and effective system,” while also weakening financial institutions’ abilities to “prevent fraud, manage risk, and provide critical services to consumers.”
“The perennial failure of this proposal around the country points to the fact that it is fundamentally inoperable, standing to disrupt the payment flow of every business in America.
"It’s an ill-conceived money grab by big retailers who benefit from the convenience of payments and banks’ covering the cost of rampant debit/credit fraud, but don’t want to help cover the costs,” said Christopher Williston, President & CEO, Independent Bankers Association of Texas.
Southwest Airlines has also joined the opposition movement to help legislators see how the bills negatively impact the rewards programs their customers rely on.
