Credit Card Rewards Could Take a Hit Under New Colorado Bill

Colorado is moving forward with a bill that stands to reshape credit card economics for consumers. The state is advancing a measure that would prevent companies from charging interchange fees on the sales tax portion of a credit or debit card payment.

The bill is gaining traction at a time when similar legislation in Illinois is running into considerable roadblocks. The Illinois Interchange Fee Prohibition Act (IFPA) is scheduled to take effect on July 1, unless federal efforts to stop it are successful. 

Groups including the American Bankers Association and America’s Credit Unions have opposed the IFPA in part due to the compliance challenges it would create.

An appeals judge recently ruled that a lawsuit the groups brought against the interchange act will head back to a district court in the state for additional proceedings, according to an American Banker report.

“We welcome the opportunity to resume our legal challenge to the Illinois Interchange Fee Prohibition Act in district court,” the groups noted in a statement. “As we have consistently argued, the Illinois Interchange Fee Prohibition Act conflicts with federal law, and recent regulatory actions only reaffirm that fact.”

The bill in Colorado would only apply to companies with $60 billion or greater in assets.

Some objections to the IFPA are that it not only creates a complex and potentially unworkable standard for banks and payment systems, but it also may prompt other states to follow Illinois’ lead in creating interchange laws of their own.

And if those laws don’t mirror the IFPA in structure, companies could face a different set of rules for each state they operate in.

Despite concerns from banks and other parties, Colorado is marching ahead with its own plans to eliminate certain interchange fees. But the state bill differs from the IFPA in a few key areas.

Namely, the IFPA aims to block parties from charging interchange fees on both the sales tax and tip portions of a bill. In addition, while the IFPA applies to all affected merchants, the bill in Colorado is only for those with assets of $60 billion or more.

Parties that object to the Colorado bill have some time to get their plans together for opposing it. Absent a referendum from voters, it won’t go into effect until January of 2028, according to a Digital Transactions report.

But some are wasting no time in making their opinion heard on the Colorado legislation. In an email to Digital Transactions, Scott Talbot, Executive Vice President for the Electronic Transactions Association, said the bill would disrupt the global payments industry.

“All parties — from issuing and acquiring banks to processors, consumers, and merchants — would be adversely affected,” Talbot explained. “It would force all players to divert critical resources away from innovation to implementation — with the costs outweighing any perceived benefits.”

Furthermore, Richard Hunt, Executive Chairman of the Electronic Payments Coalition, said in a statement that the legislation would cause confusion at checkout and lead to years of expensive legal fights unless Colorado Governor Jared Polis vetoes it. 

But much as in Illinois, merchant groups are rushing to defend the Colorado bill. 

Doug Kantor, National Association of Convenience Stores General Counsel and Executive Committee Member of the Merchants Payments Coalition, said in a press release that people should be applauding legislators in Colorado for shielding the state’s consumers from the impacts of interchange fees.

“This is landmark legislation that will save Colorado small businesses and their customers millions of dollars each year and keep that money in the local economy rather than sending [it] off to out-of-state megabanks and global card networks,” Kantor said.

But consumers don’t have any guarantees that the bill would lead to lower prices and allow them to save money. In fact, many experts believe that removing interchange fees could force credit card issuers to reduce the value of the rewards programs they offer through their cards.

Stripping rewards cards of their value couldn’t come at a worse time for families struggling to keep up financially. The rising costs of everyday necessities such as gasoline have put a strain on many household budgets. 

In a recent opinion column, two community leaders in Colorado warned about the devastating reality many families in the state would face if they lost access to credit card rewards programs.

“For families living paycheck to paycheck, every dollar matters,” the leaders wrote. “These rewards are often one of the few ways families can offset rising costs. Weakening or eliminating these benefits will not hurt everyone equally; those already facing the greatest financial challenges would bear the brunt of the impact.”