Expanding credit unions’ push back against interchange fee caps, America’s Credit Unions, the California Credit Union League, and other organizations wrote in opposition to a California state bill that would limit interchange fees.

Similar to the Illinois Interchange Fee Prohibition Act (IFPA), California Assembly Bill 1065 would prohibit institutions from charging or receiving interchange fees in California on the tax or gratuity portion of a debit or credit card transaction.

“While the bill purports to limit interchange fees to help merchants, in practice it would only benefit a narrow group of large, out-of-state retailers—at the expense of those who can least afford it,” the organizations wrote to the California General Assembly, adding the bill “threatens to disrupt a delicate ecosystem that supports access to affordable banking, fraud protection, and secure, convenient payments.”

The bill would:

• Mandate development in business software of new auditable data fields to isolate tax and gratuity, despite the fact that current credit card infrastructure does not support this functionality;
• Result in a reduction of consumer services that include free checking, credit card rewards, and fraud protection, similar to effects caused by the Durbin Amendment’s debit caps starting in 2011;
• Shift the burden of fraud prevention and increase fees, reduce protection, and potential additional charges to consumers; and
• Disproportionately harm California businesses over out-of-state businesses.

America’s Credit Unions and the Illinois Credit Union League are engaged in a legal challenge against the IFPA, which would become effective July 1 in that state.