DENVER—The Colorado House has approved legislation that would prohibit interchange fees from being charged on the sales-tax portion of card transactions, sending the measure to Gov. Jared Polis and setting up what could become another major legal and operational battle for financial institutions following the ongoing fight over Illinois’ Interchange Fee Prohibition Act.
The measure, SB26-134, cleared the Colorado legislature after narrowly passing the Senate last week and is modeled in part on the Illinois law now being challenged in federal court by America's Credit Unions, the Illinois CU League, the American Bankers Association and other financial services groups. Industry opponents have argued such laws interfere with federally regulated payment systems, create compliance complexity and force costly payment network changes.
The Defense Credit Union Council sent a letter to Polis Thursday asking him to veto the bill, emphasizing a key problem is not just who is above or below the bill’s asset threshold. The problem is that the entire system must accommodate a new Colorado-specific rule.
"We understand why a bill like this can sound appealing. On its surface, it is presented as a narrow step to stop interchange from being charged on the tax portion of a purchase. But the official re-engrossed text does something much broader. It pushes Colorado-specific rules down into the plumbing of the card system itself. It would require changes to how transactions are settled, how tax is reconciled after the fact, how exempt cards are identified, how fee schedules are built, and how payment disputes are defended in court. This is not just a pricing bill. It is an operational mandate on the payment rails," the letter states.
Previous CUToday.info reporting detailed the continued opposition from the Defense Credit Union Council, which moved aggressively against the legislation following Senate passage. DCUC sent letters to Colorado lawmakers and Gov. Polis warning the proposal would “fragment the payments system,” require network-level reprogramming and expose institutions to litigation risk while offering little evidence consumers would actually see lower prices.
DCUC Chief Advocacy Officer Jason Stverak said in prior statements the proposal could disproportionately impact military serving credit unions and smaller institutions that lack the scale and revenue diversification of larger banks. According to DCUC, even with carveouts and asset thresholds, the legislation would create operational burdens extending well beyond Colorado because card payment systems operate nationally rather than state-by-state.
Supporters of the bill, including restaurant and retail groups, argue merchants should not pay interchange on money collected for taxes and say the measure could save businesses thousands annually.