Separate bills making their way through the Texas Legislature have banks and consumer advocates on edge, posing challenges to the state’s financial infrastructure and its pro-business bent.
At issue are two sets of bills regulating credit card processing fees, which collectively set a record of nearly $188 billion last year, according to Nielsen Report data. While they can cost individuals hundreds of dollars per year in transaction fees, that money helps fund credit card perks and rewards programs that consumers have embraced.
Texas’ efforts to regulate the fees may seem in the weeds, but some critics say the downstream effects could seep into the everyday financial affairs of consumers — and risk Gov. Greg Abbott’s carefully cultivated pro-business stance.
The legislation has brought together an unlikely coalition of skeptics, including the leader of the largest bank in America.
In a wide-ranging interview in March with reporters and editors from The Dallas Morning News, JPMorgan Chase CEO Jamie Dimon said that he was “very bullish” on Texas.
Still, the Wall Street veteran warned that various efforts in the Lone Star State to reform consumer banking “should be very thoughtfully done. Fix the problem, but don‘t make it so that banks don‘t want to bank here.”
What is a credit card interchange fee?
Credit card purchases involve at least a few parties: card-issuing institutions, banks and the firms accepting the payments on behalf of the merchants (the acquiring banks).
Major financial institutions like JPMorgan Chase, Wells Fargo, Bank of America and others are often involved on both sides, but there are also specialized services. Credit brands like American Express and Discover often serve as their own issuing banks.
Meanwhile, firms like Fiserv and Stripe can serve as payment processors, a tech-based role that facilitates electronic transactions, and acquiring banks.
When you swipe your card at a store, the store’s acquiring bank pays your issuing bank an interchange (or swipe) fee, which covers the cost of maintaining the credit card’s infrastructure and the risk banks incur by extending credit, among other things.
Card networks — Visa, Mastercard, Discover and American Express — set the rates for interchange fees based on a variety of factors like the type of card and payment methods such as a physical swipe or entering card info online. What’s important to know is that these rates, which average around 3%, are the result of complicated and highly variable factors.
That interchange fee is then passed onto the merchant by its acquiring bank, as part of what the merchant pays for payment processing. Just like the cost of any service, the merchant usually pays the processor more than what the actual interchange fee costs. When a business chooses to accept credit cards, this becomes part of its operating cost.
What bills are involved and what do they do?
In Texas, sister bills SB 2056 and HB 4061 were introduced by Republicans state Sen. Kelly Hancock of Fort Worth and state Rep. Jared Patterson of Denton, respectively. They primarily regulate how interchange fees are set, with violations incurring a civil penalty.
In short, the legislation would prohibit issuing banks from using standard interchange fee rates determined by payment card networks, prohibit the latter from requiring merchants to accept all their cards if the merchant accepts one and require disclosure of interchange fees charged on each transaction from issuing banks to cardholders, and from card networks to merchants.
The Senate version passed through the Committee on Business and Commerce after a substitute in mid-April, and was replaced on the Senate intent calendar earlier this week. But in the House, it’s been in limbo in the House Pensions, Investments & Financial Services Committee since a public hearing April 14.
According to Hancock’s statement of intent, his bill “seeks to create competition and transparency regarding the cost of hidden credit card processing fees.” The statement claims that, due to a lack of competition, American card processing fees are the highest in the world and have more than doubled in the past decade.
The intended effect of the bills is to provide fee transparency to consumers and merchants, but opponents argue that they could instead cause chaos for those same people. According to the Electronic Payments Coalition, an association of stakeholders in the electronic payments system, these bills would force every business to negotiate individual credit card processing deals with 280 issuing banks.
Neither of the bill’s sponsors responded to The News’ request for comment.
The Texas Bankers Association has pushed back, arguing the reason interchange fees have increased is simply because of the growing prevalence of credit cards, which facilitated over $11 trillion worth of activity in 2024, according to Nielsen. The rates themselves have stayed consistent, the TBA says.
In a recent joint letter to Senate Republican and Democratic caucus chairs Tan Parker and Carol Alvarado viewed by The News, the association — along with the state’s Credit Union Coalition and Credit Union Association — characterized the new legislation as demonstrating “a lack of understanding of how the credit card process works for merchants.”
They cite the bill’s stipulation that issuing banks disclose swipe fees to consumers. Issuing banks do not have that information, they said, acquiring banks do, muddying the applicability of the law and how to comply with it.
High-volume retailers like Amazon and Walmart have the capability to negotiate their own processing deals — and could benefit from negotiating lower rates. But skeptics say small businesses could get left behind, and consumers could face significant uncertainty over whether their card will be accepted.
“This bill invites confusion and inconvenience into every transaction, replacing a seamless process with a fragmented system that will fail people at the moment of payment,” according to a statement from Donna Finley, a restaurant operator participating in the coalition‘s “Guard Your Card” campaign.
“And when a card doesn‘t work, it’s not the big banks or national retailers who have to explain it to frustrated customers. It’s us, the small business owners on the front lines,” Finley added.
‘A tangle of new complications’
Two related pieces of Senate legislation, SB 2026 and HB 4124, would exempt sales tax and gratuities from interchange fees. The former is sponsored by Republican state Sen. Donna Campbell of New Braunfels, while the latter is sponsored by a GOP trio of state Representatives, Drew Darby, Ken King and Angie Button.
“Since swipe fees are calculated as a percentage of the entire transaction that the merchant is required by law to collect, they are paying card processors a significant fee to be the government’s tax collector,” Campbell wrote in the Senate bill’s statement of intent.
The bill would require card networks to either deduct tax and tip when the transaction occurs, or rebate the swipe fees attached to tax and tip if a merchant files proof of a transaction within 180 days.
A similar bill exists in Illinois, the Interchange Fee Prohibition Act. It was scheduled to take effect in July, but it has been challenged in court and faces calls for repeal.
In a white paper, Julian Morris, senior scholar and former director at the International Center for Law and Economics, broke down the bill’s potential implementation and effects. He explained that the law’s mechanics give large merchants an advantage at the expense of small ones — and big players stand to gain the most from state efforts to curb interchange fees.
One problem with deducting tax and tip from the interchange fee is that current point-of-sale technology does not have the capability to run the calculation separately, TBA chief executive officer Chris Furlow told The News in an email.
“Card providers and issuers will have to build systems that don‘t currently exist, and small businesses will have to buy updated point of sale equipment,” he wrote. “That creates a tangle of new complications — opening the door to delays, rejected payments, and frustrating checkout experiences for consumers in Texas.”
How does this affect Texans?
Any savings merchants get from interchange regulations would be unlikely to be passed down to consumers because of the structure of the industry, Morris wrote, if savings materialized at all.
Interchange fees generate revenue that banks would likely find other ways to make up, limiting savings. That revenue pays for a host of credit card services, like fraud protection and rewards programs, that credit card holders generally rate favorably.
A U.S. News and World Report survey from 2019 found that more than 81% of surveyed consumers were “satisfied” or “very satisfied” with their primary credit card. Were issuing banks to lose a substantial amount of swipe fee revenue, those services and rewards programs would be impacted, Furlow said.
Banks have previously opposed federal regulations on interchange fees, like the 2010 Dodd-Frank Act’s Durbin amendment, in part because they reduce revenue, but regulating banks at the state level adds additional wrinkles. National banks can get caught between state and federal law, while state banks can be put at a competitive disadvantage.
“If every state starts adding its own rules, we would end up with a complex patchwork of legal and compliance nightmares — and that’s not sustainable for banks or businesses that operate across state lines,” Furlow said.
For some, the legislation poses a challenge to Texas’ reputation as a beacon for businesses and jobs. The economic “miracle” promoted by Abbott has led to a number of large capital investment projects, created a top-ranked business climate in the U.S. and led to a record number of civilian jobs.
“We’re very pro-Texas,” Dimon told The News in March. “It’s a pro-business state. I think it matters for our country. It’s a good example, whether you’re Democrat or Republican, for how you improve society for all people involved.”
But over-regulation of financial institutions, especially with Texas poised to become a major financial center, runs contrary to that pro-business reputation, Furlow said.
“Over time, that could push financial institutions to limit services in Texas or slow their investment here, and every industry that depends on access to credit, payment systems, and financial services will be impacted,” he said. “The ripple effect on small businesses, local economies, and everyday Texans could be significant.”
