Colorado Rejects Illinois-Style Interchange Fight As Polis Blocks SB26-134
By CU Today Staff —
DENVER—Colorado Gov. Jared Polis has vetoed SB26-134, the controversial interchange-fee bill that would have prohibited card issuers and payment networks from charging interchange on the sales-tax portion of transactions, handing credit unions, banks and payments companies a significant victory and avoiding what many feared would become another Illinois-style legal and operational battle.
The bill had cleared the Colorado legislature earlier this month and was modeled in part on Illinois’ Interchange Fee Prohibition Act (IFPA), which remains the subject of ongoing litigation involving America’s Credit Unions, the Illinois Credit Union League, the American Bankers Association and other financial-services organizations.
Industry groups argued Colorado's measure would require extensive changes to payment-processing systems, create compliance challenges and expose financial institutions to new litigation risks.
In welcoming the veto, the Defense Credit Union Council said Polis recognized concerns raised by credit unions, community organizations and payments stakeholders regarding the bill’s potential impact on consumers, small businesses and financial institutions operating in Colorado.
DCUC, America’s Credit Unions, the GoWest CU Association and other opponents had argued the legislation extended far beyond a simple pricing change and instead would have imposed Colorado-specific requirements on the national payments infrastructure, affecting how transactions are settled, taxes are reconciled, exempt cards are identified and disputes are handled.
“We understand why a bill like this can sound appealing. On its surface, it is presented as a narrow step to stop interchange from being charged on the tax portion of a purchase. But the official re-engrossed text does something much broader. It pushes Colorado-specific rules down into the plumbing of the card system itself,” DCUC wrote in its earlier letter urging a veto.
DCUC previously urged the Governor to reject the legislation due to its far-reaching operational implications for payment systems and the broader financial ecosystem. In a May letter to the Governor, DCUC noted that while the proposal was framed as a narrow effort to address interchange on the tax portion of purchases, the bill’s underlying requirements would have imposed sweeping changes on how transactions are processed, settled, and disputed across the card system.
As DCUC wrote, the legislation would have required “changes to how transactions are settled, how tax is reconciled after the fact, how exempt cards are identified, how fee schedules are built, and how payment disputes are defended in court,” effectively amounting to an operational mandate on the payment rails rather than a narrow pricing adjustment.
“When policies reduce the resources community-based institutions can devote to fraud prevention, responsive service, and affordable products, military families often feel that loss first,” wrote Jason Stverak, DCUC chief advocacy Officer. “This issue comes down to a simple question: should Colorado gamble with the reliability of the card system and the institutions that serve military families in exchange for consumer benefits that the bill does not clearly require, audit, or verify? We believe the answer is no.”
“Governor Polis’ veto reflects a clear understanding of the complexity and interconnected nature of the payments system and the importance of avoiding unintended consequences for consumers and financial institutions,” said Anthony Hernandez, DCUC president/CEO, ret. U.S. Air Force Colonel. “We appreciate his leadership in recognizing these concerns and taking action to protect Colorado consumers, small businesses, and the credit unions that serve military and veteran families.”
The GoWest CU Association said the veto protects Colorado consumers from unnecessary disruption and preserves a secure, efficient payments system,” said Troy Stang, president and CEO of GoWest Credit Union Association. “As financial partners to more than 2.8 million Coloradans, credit unions support policies that lower costs and improve financial access for families and small businesses. We greatly appreciate Governor Polis’ significant investment of time and attention to fully understand the perspectives of all involved in this system and ultimately act in a way that benefits all Coloradans, not just the world’s biggest retailers."
“A prohibition on interchange fees shifts the payments system away from consumers and toward retail giants who stand to reap the benefits,” said Scott Simpson, president and CEO of America’s Credit Unions. “America’s Credit Unions applauds Governor Polis for taking a principled stand against this costly and chaotic policy. With ongoing litigation and increasing federal preemption, this would have mired Colorado in years of legal uncertainty and operational chaos while other states moved forward to increase the safety and effectiveness of the payment system. While we are grateful for this result, our organization remains vigilant and active in combatting any attempt to upend the national payments system.”
Supporters of SB26-134, including restaurant and retail groups, argued merchants should not pay interchange on taxes collected on behalf of government and contended the measure would save Colorado businesses millions of dollars annually. Legislative sponsors said merchants paid significant interchange fees on sales-tax collections and that eliminating those charges would provide relief to small businesses.
The veto also means Colorado will not immediately join Illinois as a test case for state-level interchange restrictions. Industry groups have repeatedly warned that a patchwork of state interchange laws could fragment the payments system and increase costs for consumers and financial institutions nationwide. The decision is likely to be viewed by credit union advocates as an important setback for efforts to replicate Illinois-style interchange legislation in other states.
Originally reported by CU Today.