Brennan: Mass. lawmakers can curb credit card abuse
The Massachusetts Joint Committee on Financial Services is currently evaluating two significant pieces of legislation, Senate Bill 688 (S.688) and House Bill 1259 (H.1259), aimed at alleviating the financial burdens faced by the Commonwealth’s over 700,000 small businesses. These bills propose to prohibit credit card companies from imposing interchange fees on taxes and tips, with H.1259 going further to tackle price-fixing practices and ensuring clear disclosure of these fees on monthly statements. By addressing these issues, the proposed legislation seeks to restore fairness in a marketplace increasingly dominated by major credit card companies, often referred to as a “modern-day credit card cartel.”
Swipe fees, which are fees charged to merchants every time a customer uses a credit card, typically range from 2% to 4% of the transaction amount. While this might seem negligible on small purchases, for small business owners operating on slim profit margins, these fees can accumulate to significant losses. In 2023 alone, U.S. merchants lost over $148 billion to swipe fees, a staggering $12 billion increase from the previous year. These fees are particularly egregious as they are applied to taxes and tips—funds that do not belong to the banks at all. The consolidation of power among Visa and Mastercard, which control 80% of the credit card market, exacerbates the problem, allowing these companies to raise fees with little accountability or competition. By passing S.688 and H.1259, Massachusetts could provide essential relief to small business owners, who currently face swipe fees as their second-largest operating expense after labor.
The urgency of this legislation is underscored by recent economic indicators. CNBC has ranked Massachusetts as the second-worst state for business due to high operating costs, and the state’s workforce is showing signs of decline. Last year, Illinois successfully passed legislation banning swipe fees on taxes and tips, garnering overwhelming public support and resulting in significant cost savings for local businesses. Moreover, there is growing momentum at the federal level, with the bipartisan Credit Card Competition Act aiming to save merchants nationwide approximately $16 billion annually by mandating the inclusion of alternative processing networks. By taking action on S.688 and H.1259, Massachusetts lawmakers have a unique opportunity to champion small businesses and foster a more competitive marketplace, ultimately benefiting local economies and communities across the state.
The Massachusetts Joint Committee on Financial Services is considering legislation that could help level the playing field for the more than 700,000 small businesses across the Commonwealth. The bills in question — S.688 and H. 1259 would both prohibit credit card companies from collecting interchange fees on taxes and tips, while H. 1259 would go further and prohibit fixing of interchange fees and clear disclosure of these fees on monthly statements.
Both bills represent a a long-overdue step toward restoring fairness in a marketplace dominated by a modern-day credit card cartel.
Many consumers don’t realize that every time they swipe, tap, or insert a credit card — whether to buy an iced coffee or a tank of gas — the store must pay what’s called a “swipe fee” to the credit card network and issuing bank. These fees typically range from 2% to 4% of the total purchase price.
On paper, that may seem like a drop in the bucket. After all, what’s 3% on a $2 candy bar? But in practice, “swipe fees” are devastating for hardworking business owners operating on razor-thin margins. Merchants across the U.S. lost more than $148 billion to “swipe fees” last year alone — a $12 billion increase from 2023. Even worse, these charges are tacked onto taxes and tips — money that never belonged to the banks in the first place.
And “swipe fees” will continue to rise year after year thanks to severe consolidation in the credit card arena. Visa and Mastercard control 80% of the credit cards in circulation, granting them near-total power to raise rates whenever they please. With little competition and no transparency, business owners and their customers are left footing the bill.
S.688 offers a simple, common-sense solution. While it wouldn’t take “swipe fees” out of the equation entirely, it would stop credit card networks and banks from profiting off non-revenue portions of transactions. For small businesses across the Commonwealth, this change would provide real relief from what has become their second-highest operating expense after labor.
H. 1259 would restrict the worst practices of the Visa/Mastercard duopoly by prohibiting price fixing of interchange fees, requiring adequate disclosure of these fees to consumers and businesses, and empowering the Attorney General to pursue enforcement actions against bad actors.
State lawmakers don’t need to look far to see this play out in practice. Last year, Illinois became the first state in the nation to ban “swipe fees” on taxes and tips. Despite fierce opposition from the major card companies, the measure won overwhelming public support, with nearly three-fourths of voters backing it. Business owners there are now poised to save millions in costs that can instead be reinvested in workers, equipment, and local communities.
Momentum is also building in Washington. The bipartisan Credit Card Competition Act would save merchants across the U.S. an estimated $16 billion annually by requiring the largest banks to include two processing networks beyond Visa and Mastercard on their credit cards. This minor change would enable smaller networks to offer lower “swipe fee” rates to compete for a merchant’s business. It’s a classic example of letting the free market work its magic.
But until Congress acts, states like Massachusetts have a chance to lead the way. And that opportunity couldn’t come at a more critical time.
CNBC recently ranked Massachusetts as the second-worst state to do business in, citing sky-high operating costs. Meanwhile, the state’s workforce is showing signs of decline. Eliminating fees on taxes and tips isn’t a silver bullet, but it’s a concrete step toward giving local employers a fighting chance.
Lawmakers have a golden opportunity to side with Main Street by passing S.688 and H. 1259. Small business owners in Massachusetts — and the Bay Staters they serve — are counting on it.
Peter Brennan is Executive Director of the New England Convenience Store and Energy Marketers Association
