Credit card 'swipe fees' could decrease under new Pa. bill, but banks hate the idea

[FakeNoose]

Spotlight PA link: https://www.spotlightpa.org/news/2024/06/swipe-fee-credit-card-bank-merchant-pennsylvania-bill-legislation/

HARRISBURG — A bill that aims to slightly lower credit card “swipe fees” is moving quickly through the Pennsylvania House. But it faces long odds in the state Senate and has drawn vehement opposition from banks and credit unions. Financial institutions say the current system works well and that changing it would create “chaos,” while merchants argue these fees are an undue burden on both them and their customers.

“There’s a lot of spin and swirl on that issue,” state Senate Majority Leader Joe Pittman (R., Armstrong) said, noting that changes to the fees are unlikely to be considered by his Republican-dominated chamber any time soon if the measure passes the Democratic-controlled state House.

Anyone who has paid for a transaction with a credit card has, knowingly or unknowingly, experienced swipe fees. When a customer pays a merchant using a credit card, the credit card company charges a “swipe fee.” The fee can range between 1.4% and 3.5% of the transaction’s cost, depending on the credit card company, including the cost of sales tax, plus an additional flat fee. Lower swipe fees are also charged on debit cards.

The bill in the state House would keep the fees from being applied to the state sales tax. The legislation was introduced, approved by a House committee, and preliminarily considered on the House floor last week.

Swipe fees are generally among sellers’ largest operating expenses, according to supporters of the bill. To cover them, businesses often raise prices and charge their own swipe fees to consumers. The National Retail Federation has estimated swipe fees cost the average family $1,000 annually.

- more at link -

If the bill passes both houses and if it goes into effect in Pennsylvania, will merchants lower their prices to reflect their cost savings? Oh hell no!

But on the other hand, why should credit cards be charging an additional "fee" on the sales tax? That doesn't make sense either. The merchant collects the sales tax at the point of sale, and the merchant is responsible for remitting sales tax to the state. Why does the bank get to collect a "fee" on sales tax, when they've already gotten a swipe fee on the transaction?

To complicate things further, not every county in Pennsylvania collects sales tax equally. The state charges 4% sales tax, while some but not all counties add an additional 3%. Regardless of whether the sale was paid by cash or credit card.

[bucolic_frolic]

1. On eBay the PA state charges sales tax on USPS postage. Yup. A tax on stamps.

[FakeNoose]

2. That's crazy

I haven't bought anything on EBay for several years. Back when they went all-PayPal was when I quit them. What, about 10 years ago? Anyway that seems to be an incorrect charge that you could dispute them on and win.

They aren't remitting PA sales tax to Pennsylvania for the sale of postage stamps, so why are they collecting it from you? That's clearly illegal and it should be reported to the US Postal System. Tell EBay you're going to do that, and maybe they'll stop charging you.

[bucolic_frolic]

4. Good idea, but hey not only charge when you buy stamps or collectible stamps

PA makes them collect sales tax on the postage you pay to ship packages to you. So on taxable merchandise, you pay tax on postage. On non-taxable merchandise - food, clothing - you do not pay tax on postage. There's enough there for lawyers to work on.

[unblock]

3. to me, this is a well-intentioned idea, but it doesn't actually make much sense and won't work as intended.

the problem is that when i buy an item subject to sales tax and put it on my credit card, everyone simply sees the entire transaction and no one really cares about the line items involved. if the charge is for $106, they just see it and process it as a $106 transaction. they don't know if it was all or partially tax-free items (prescriptions, e.g.) or one item or 5 items that added up to that amount, and they don't know or care how much of it is sales tax.

i see $106 on my credit card statement, that's the amount i have to pay, and that's the amount some entity in the credit card processing system had to advance to the merchant a few days after the transaction even though i pay my credit card bill a month or so later.

so what's really likely to happen is that the credit card fees would just go up by the amount of sales tax. The subtlety is that if they want to keep the fees exactly the same, they would have to now keep track of changing sales tax rates throughout the state and adjust fees accordingly. Alternatively, they could raise fees by the average rate, which would then slightly help merchants in high-tax locations at the expense of merchants in low-tax locations. I'm not sure this is the practical result they intended as a matter of policy.

moreover, this is the sort of thing that businesses like credit card processing companies use as an excuse to raise rates anyway. so my guess is that actually, fees would go up across the board and nearly everyone loses.


i think a better approach would be to find a way to not put sales tax on the swipe fees, perhaps require that swipe fee rates be reported to the state and then the state reimburses the merchant for the sales tax collected on those amounts. that doesn't require much extra work for the businesses and keeps the money going basically where it's intended.

[FakeNoose]

6. This is the banks' argument - the system already works, why mess it up?

The swipe fees are paid by the merchants, not the card owners. So the swipe fees are really hidden in the selling price of each item we buy. And the least understood thing is that the selling prices are determined before the merchant knows how we're going to pay. So if I go in with cash and you go in with a credit card, we're both paying for the same $100 item. But the merchant had to pay the bank a small amount (between $1.50 and $3.00) for your charge, and nothing for my cash payment. That's regardless of whether it was taxable or not.

What Harrisburg is arguing over is whether the swipe fee should be charged for the sales tax as well as the purchase price. It already is being charged for both the purchased item and sale tax, and now they want to eliminate the sales tax portion. It could be a significant amount on a large purchase such as a car... but most of us would never notice the difference on weekly groceries or whatever.

[unblock]

7. yeah, and some merchants (usually smaller businesses and certainly not all) offer a discount for cash because of this

and quite possibly because they're evading income taxes on cash transactions as well, but that's another topic entirely....

the problem i have with this is that the government is trying to regulate the formula the credit card market uses to charge for their services. but in the end, the market only cares about how much you pay and how much you earn.

so to keep the cost and fees approximately the same, if they have to charge on $100 instead of on $106, they're just increase their fee rate by 6% to keep the revenue unchanged. So in end it doesn't accomplish anything. consumers still pay the same amount, merchants still pay the same amount, card companies still get the same amount.

maybe merchants get a temporary break as contracts roll off before the credit card processors renew with a 6% higher rate. and as noted before, people in lower tax areas and buying items free from sales tax would end up slightly subsidizing the rest.

consumers will not see any break on a car purchase.

[dutch777]

5. Where we live in eastern PA, many merchants prefer or only take cash and those that take cards charge an extra 3%.

And almost no one will take American Express as it has the highest fees. Part of it is our fault as consumers who bought into the Cash Back cards and thought that little bonus just came free from thin air. That is part of what many credit card companies charge the fees for thinking that merchants could spare the change. It all gets paid for some way and merchants like restaurants where profit margins are razor thin just have to pass on costs in some way or another by either charging more for each item or a flat fee for the pleasure and convenience of us using the card.

[FakeNoose]

8. Banks are making a bundle on swipe fees, that's what pays for those "give-back" programs