Assembly committee rejects Ortega swipe‑fee ban; reconsideration approved

A California Assembly committee on Thursday voted down AB 1065, a bill by Assemblymember Ortega that would prohibit banks and credit card networks from charging swipe fees on the sales‑tax portion of card transactions, and later voted to reopen consideration.

The bill’s author argued the change would relieve small businesses that collect sales taxes for local services. Assemblymember Ortega said AB 1065 would “prohibit swipe fees on this tax portion of transactions paid with the credit card,” and described the measure as relief for small businesses paying thousands of dollars a month in processing costs.

The bill drew lengthy testimony from merchants, trade groups and banking representatives. Dozens of small business owners from Sacramento and other areas testified in support, saying swipe fees are a major operating expense; one local restaurateur said she paid “$6,000 to $7,000 every month” across her businesses in processing fees. Dan Swanson, an attorney who worked on federal payments policy, told the committee that “now AB 10 65 reins in one of the most unreasonable aspects of swipe fees by stopping Visa and Mastercard from fixing interchange fee rates that apply to the sales tax portion of transactions.” He said the measure would target network pricing practices and provide relief to restaurants, grocery stores and other merchants.

Opponents, including the California Credit Union League, the California Bankers Association and other financial‑industry witnesses, said the bill is likely to trigger federal preemption questions and would fall disproportionally on state‑chartered institutions. Robert Wilson of the California Credit Union League warned the committee that the Illinois law with similar language was subject to a lawsuit and preliminary injunction. Jason Lane of the California Bankers Association described technical and interoperability problems, saying the global payments standard maintained by the International Organization for Standardization (ISO) currently does not distinguish a sales‑tax subfield in transaction messages and that changing the system could be slow and costly.

Committee members pressed both sides on workability and likely effects. Some members asked whether the networks would invest in technical changes to separate the tax amount if the measure applied to only a portion of the market; others raised concerns about where any cost savings would go if interchange fees were reduced. Supporters said other countries and jurisdictions had imposed limits on interchange fees or negotiated with the networks.

On a roll call, the committee recorded a majority of ‘‘no’’ votes on the motion to do pass, and the measure failed on that vote. After the vote, a member requested reconsideration; initial unanimous‑consent for reconsideration was objected to, but on a subsequent roll call the committee recorded enough votes to grant reconsideration.

The bill’s future now depends on what the author and stakeholders do next: the committee’s action did not place the bill on a floor calendar, and the record shows committee members and witnesses agreeing to continue negotiations and technical discussions.

Votes at a glance: AB 1065 — initial motion to do pass: failed on recorded roll call (multiple committee members voted “no”); motion to reconsider: approved on a subsequent roll call.