Vermont limits swipe fees paid to credit card issuers

By Ylan Q. Mui
Washington Post Staff Writer
Saturday, May 22, 2010

Vermont on Friday became the first state to pass legislation limiting the swipe fee on credit and debit card purchases, a week after the Senate approved a similar provision as part of the mammoth financial overhaul bill.

The Vermont law targets the fee retailers must pay card issuers and processors each time shoppers swipe a credit or debit card, which typically ranges from 1 to 2 percent of the price of the purchase.

The law allows retailers to set a $10 minimum for credit and debit card charges and to offer a discount to shoppers who pay with cash starting Jan. 1.

Vermont lawmakers unanimously passed the legislation several weeks ago and then sent it to Gov. Jim Douglas (D) for approval. On Friday, Douglas said that he would not sign the bill but also would not veto it, allowing it to become law without his signature.

In a statement, Douglas said he sympathized with merchants, who have complained that the swipe fee can often eat up their profit on small purchases. But he worried that consumers' ability to use their cards would be restricted and that some card issuers and networks might limit their services in the state as a result of the new law.

"I do not believe . . . that legislation of this nature is best handled at the state level," Douglas said.

The Vermont law is the second big win for retailers this month on what has long been one of their top political issues. Last week, the Senate approved an amendment sponsored by Sen. Richard J. Durbin (D-Ill.) that included similar provisions. In addition, it directed the Federal Reserve to ensure that the fees are "reasonable and proportional" to the costs incurred by the network that processes the card, typically Visa or MasterCard. The Senate passed the financial overhaul bill that includes the amendment Thursday, and now it must be reconciled with a version passed by the House in December that does not address swipe fees.

"What Vermont has done is a first step," said Mallory Duncan, general counsel for the National Retail Federation, a trade group. "What the Senate has done is a more important step, but it's not been completed, yet."

Card issuers and processors say the Vermont law might help retailers but could become a burden for consumers. Trish Wexler, a spokeswoman for the Electronic Payments Coalition, which represents card issuers and processors, said many state benefits such as unemployment checks are delivered on prepaid cards. If retailers set minimums for using cards, that could force some consumers to spend more money to meet the bar.

"I suspect that you're going to see a lot of unhappy Vermont citizens who can't use their cards the way that they want to," she said.

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