Mass. restaurant groups and small-business advocates press legislature to allow credit‑card surcharges and curb fees

Lawmakers heard competing pitches on credit‑card fees and interchange rules during a Joint Committee hearing that drew restaurant owners, labor and business groups, payment networks and consumer advocates.

Representatives of the Massachusetts Restaurant Association, small restaurant owners and the National Federation of Independent Business urged the committee to pass bills that would allow businesses to add a disclosed convenience fee or surcharge for credit‑card payments and to ban charging fees on taxes and tips collected by merchants. They said the current cost of card processing is squeezing thin restaurant margins and that Massachusetts is one of two states currently prohibiting surcharges.

The issue matters because restaurants said card fees are applied to full transaction totals — including sales tax and gratuities — and because card use is common: testimony said over 80% of meal tax payments are expected to be made by card this year. “Credit card fees used to be about 50% of our sales. Post pandemic they were over 90%,” Kathy Turner of Turner Seafoods told the committee. Turner testified her three restaurants paid roughly $400,000 in card fees last year, with about $100,000 attributable to collecting taxes and tips.

Jessica Moore, director of government affairs for the Massachusetts Restaurant Association, said the industry’s annual processing costs range from about $20,000 to $50,000 for the average small operator and estimated restaurants collected and remitted more than $1.5 billion in meal tax last year, with most paid by card. She and other witnesses asked the committee to consider bills that (1) permit a clear, optional surcharge to cover card processing, and (2) prohibit issuers from charging interchange on tax and tip amounts.

Small‑business advocates echoed those calls. Christopher Carlozzi, Massachusetts director for the National Federation of Independent Business, said rising card‑processing costs have moved higher on his members’ list of business concerns and argued Massachusetts firms are at a competitive disadvantage because 48 other states allow surcharges.

Speakers representing banks, card networks and some processors warned the committee that steps to regulate interchange or to forbid charging fees on taxes and gratuities could disrupt the national payment system. Steve Rauschenberger of the Electronic Payments Coalition and Brian Yates of the Electronic Transactions Association said interchange (the portion of a merchant fee that goes to the card issuer) and network routing are global, technical systems that cannot easily separate a transaction into multiple taxed components in real time.

“We have a global payment system that serves your constituents extraordinarily well,” Rauschenberger said. He and other industry witnesses argued that network and issuer agreements, merchant discount rates and fraud‑mitigation costs are part of a two‑sided market that sets rates based on risk and card type; they pointed to legal and operational challenges in Illinois after that state passed a related law.

Credit unions and community financial institutions also testified. Jessica Avery of the Cooperative Credit Union Association opposed a proposal to require merchants to negotiate separate terms with each card issuer, arguing it would fragment acceptance, raise costs and risk federal preemption under the National Bank Act.

Committee members asked clarifying questions about margins, the share of fees attributable to taxes and tips, the administrative burden on merchants and the legal exposure from state action. Several witnesses proposed narrower fixes — for example, allowing surcharges while separately pursuing the option to remove interchange on tax and tip amounts — so merchants could choose how to respond.

The hearing produced no committee votes. Sponsors and stakeholders left the committee with a range of options to consider, from a limited statutory allowance for merchant surcharges with disclosure requirements to broader industry‑level changes that would require federal action or significant changes to payment network operations.

Local impact and next steps: Committee members pressed witnesses for empirical data and said they want to weigh the financial relief small businesses seek against legal and technical risks flagged by banks and networks. The hearing record includes written petitions and cost data submitted by the restaurant association and several individual operators; staff said they will circulate that material and may call additional witnesses before recommendation votes.