Author frames AB 1065 as relief for small merchants who pay swipe fees on sales tax; banks and credit unions warn of unintended consequences

Assemblymember Ortega introduced AB 1065 as a measure to prohibit payment processors and card networks from imposing interchange (so‑called swipe) fees on the tax portion of credit‑card transactions. Ortega said merchants collect sales tax ‘‘at no cost’’ to the state and that credit‑card networks should not be permitted to charge fees on the tax component of a sale.

Small‑business witnesses including restaurant operators and grocers said swipe fees represent a material operating cost and that AB 1065 would stop ‘‘double dipping’’ where processors charge transaction fees on amounts the merchant is merely remitting to government. Supporters framed the change as a software update for payment vendors rather than a hardware or consumer‑facing change.

Industry witnesses — including state‑chartered and community banks, numerous credit unions, the California Bankers Association and trade groups, and card networks (registered opposition by Visa and Mastercard) — said the bill would impose disproportionate burdens on state‑chartered institutions, could be preempted by federal law for nationally chartered banks, and would likely result in cost‑shifting through higher fixed fees or reduced fraud protections. Community bankers and credit unions said interchange revenues fund fraud prevention, free or low‑cost consumer accounts, and other services; they warned that eliminating fees on tax and tips would not reduce costs for merchants but shift them elsewhere.

Committee members discussed the pending Illinois litigation over a similar state law, preemption risks, and technical implementation questions. Several members said the bill raises important affordability questions and signaled support to advance debate; the committee placed the bill on call for further consideration.