Retailers’ efforts to alter electronic payment system threatens consumer privacy, poses costly burdens on small businesses

HARRISBURG, Pa. (June 10, 2024) – A statewide coalition of community bankers and credit unions today said legislation (H.B. 2394) that would carve out the sales tax portion of fees collected on electronic transactions would raise serious privacy concerns for consumers, burden small businesses financially, and pose significant threats to the safety, security and convenience of the entire electronic payment system.

Under this bill, merchants could be forced to collect the sales tax as a separate transaction, essentially requiring two transactions for every taxable sale. This would force consumers to pay the sales tax portion via cash or check. Merchants also would send payment companies additional information about a person’s shopping habits, creating an enormous consumer privacy issue.

“The nation’s largest retailers are jeopardizing the safety and convenience of our electronic payment system,” stated Kevin Shivers, President & CEO of the Pennsylvania Association of Community Bankers. “They stand to make millions of dollars at the expense of consumers and small businesses while disrupting the payment system that safeguards our credit cards.”

“Proposals like this one to carve out processing costs on the sales tax portion of transactions would completely disrupt the system,” said Duncan Campbell, President & CEO of the PA Bankers Association. “It would inconvenience consumers and force small businesses to pay a fortune to try to comply, if they even can.”

“This stands in direct opposition to the basic principles of consumer protection,” stated Patrick Conway, President & CEO of CrossState Credit Union Association. “The legislation would disrupt credit card rewards and other benefits sought after by consumers and small businesses, and risk the exposure of confidential consumer information.”

The Pennsylvania legislature held a public hearing on this concept last December but took no further action. However, the nation’s largest big-box retailers and corporate mega-stores are making another push during budget season. Although the measure was only just introduced, it is already on the fast track, with a committee vote announced Wednesday, June 12.

Because of consumer demand, merchants are moving away from cash and checks, adopting cashless models, like credit and debit cards, or mobile payments. Small businesses rely on cards for the ease, security and benefits they offer, and for the instant, guaranteed payments they receive. Consumers like the convenience and peace of mind that come with using their credit card, plus the frequent flyer miles, loyalty points, cash back rewards and other incentives that credit card companies offer.

Anticipating the bill introduction, the Pennsylvania Association of Community Bankers, PA Bankers Association, and CrossState Credit Union Association on June 5 sent a joint letter to members of the House Finance Committee, where the measure has been referred, warning of the significant burdens this measure will cause.

Right now, when a retailer makes a sale via electronic payment, the current interchange system recognizes only the final purchase amount on which the fee is based, not the product or services sold, nor the amount of sales tax collected.

Interchange, which averages about 1.8% and has been flat for nearly a decade, covers essential card servicing expenses like fraud prevention and protection, card statements, customer service, credit monitoring, and the rewards and incentives that families and mom-and-pop businesses use to help make ends meet or grow their businesses.

For more information about the issue, visit https://guardyourcard.com/pennsylvania.

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