Colorado House Passes Interchange Ban on Local Taxes

Why It Matters

By eliminating swipe fees on taxes, the law could lower retail prices and set a precedent for other states, while intensifying the legal clash between state consumer‑protection efforts and federal banking preemption.

Key Takeaways

• Colorado House approved swipe‑fee ban 45‑19.
• Law targets interchange fees on sales‑tax portion of transactions.
• Would become second state law after Illinois’ tax‑and‑tip ban.
• Could complicate banks’ legal fight and OCC preemption efforts.
• Merchant groups say it lowers consumer prices and protects Main Street.

Pulse Analysis

Interchange, commonly called swipe fees, are charges that merchants pay to card‑issuing banks each time a consumer uses a credit or debit card. The fees, typically 1‑2 % of the transaction amount, have become a flashpoint for lawmakers who argue they inflate retail prices, especially on non‑revenue components such as sales tax and tips. Illinois led the way in 2024 with the Interchange Fee Prohibition Act, barring banks from levying fees on the tax and gratuity portions of a purchase. The law survived a district‑court ruling but faces an appeal, highlighting the growing clash between state consumer‑protection agendas and federal banking authority.

The Colorado House approved the Swipe Fee Fairness and Consumer Safeguards Act by a 45‑19 vote, targeting exactly the same tax‑segment of transactions. Unlike Illinois, the bill is drafted to regulate card networks directly, a move designed to sidestep the Office of the Comptroller of the Currency’s recent preemption rules that aim to nullify state‑level bans. Retail‑trade groups praised the bipartisan effort, arguing that removing interchange on taxes keeps more money in the real economy and cushions consumers against inflationary pressure. If Governor Jared Polis signs the measure, Colorado would become the second state to enact such a ban.

The pending Colorado law adds a new front to the legal battle over swipe fees. Banks and industry associations contend that segmenting transactions is technically unworkable and that state bans interfere with the National Bank Act, while merchants maintain that the fees are a hidden tax on everyday purchases. A successful Colorado challenge could embolden other states to follow suit, accelerating a patchwork of state regulations that may force the federal banking regulator to revisit its preemption stance. For consumers, the ultimate payoff could be modest price reductions at the checkout, but the broader outcome will shape the future architecture of the U.S. payments ecosystem.