Hearing on HB 171 draws business owners and financial industry opposition over interchange-fee reforms

House Bill 171, sponsored in committee by Representative Elam, prompted extended public testimony April 9 on the costs and competitive effects of credit-card interchange fees applied to taxes and gratuities.

Small-business owners and restaurateurs who testified in favor said interchange fees reduce funds available for staffing and local reinvestment. Michael Cervantes, owner of The Banks Ale House in Fairbanks, told the committee that, at his location, the portion of total card fees attributed to interchange would equal roughly $53,900 annually under a 70% assumption and $69,300 under a 90% assumption; he equated those amounts to about 3 to 3.8 full-time-equivalent positions lost to fees.

“Tips that the individuals receive … we get charged as a pass-through for these two avenues for credit card companies. It’s not benefiting my operation,” Cervantes said, adding that many small restaurants operate on thin margins.

Opponents testified that HB 171 would impose heavy costs or operational complexity on small businesses, and could raise legal and implementation issues. Glenn Grossman, testifying for the Electronic Payments Coalition as a consultant and academic, described the existing card system and warned that state-level changes may create burdens, with larger retailers better able to absorb them and small merchants at a disadvantage.

Doug Ladenberger, director of treasury management at North Rim Bank, and Mark Burgess, president and CEO of Credit Union 1, opposed the bill on behalf of banking and credit-union interests. Burgess noted litigation around similar measures in other states and said a recent Illinois enactment was enjoined in federal court on likely National Bank Act preemption grounds; he said state laws of this type could create a two-tiered system that disadvantages state-chartered institutions.

Tim Sullivan, president of the Alaska Credit Union League, emphasized that interchange revenue funds services such as fraud prevention and that credit unions return value to members rather than shareholders. He and other financial witnesses said interchange does not go to card networks (Visa/Mastercard) but to card issuers and that issuer profitability on transaction fees depends on revolving card balances.

Committee members asked for more specific data on which portions of interchange revenue pay for rewards, fraud prevention, or other services; Representative Elam said he would pursue additional research. No committee vote on HB 171 was recorded during the hearing.

Why it matters: The bill would change how taxes and gratuities are treated on card transactions — an issue that affects small merchants, card issuers and consumers, and that has prompted litigation and legal uncertainty in other states.

Next steps: Committee discussion concluded with a commitment to seek more information on fee breakdowns and market shares before further action.