BILL NUMBER: S5558
SPONSOR: COONEY
 
TITLE OF BILL:
An act to amend the general business law, in relation to enacting the
"interchange fee prohibition act"
 
PURPOSE OR GENERAL IDEA OF BILL:
To prohibit financial institutions from charging merchants interchange
fees on the tax and gratuity portions of electronic payment trans-
actions, ensuring that businesses and consumers are not burdened with
fees on funds that do not constitute revenue.
 
SUMMARY OF SPECIFIC PROVISIONS:
This bill adds a new Article 42-A to the General Business Law:
Section 1200: Defines key terms, including "interchange fee," "issuer,"
"merchant," "payment card network," and "electronic payment trans-
action."
Section 1201: Prohibits issuers, payment card networks, acquirer banks,
and processors from charging interchange fees on tax or gratuity
amounts, provided that the merchant properly reports these amounts
during the authorization or settlement process.
Establishes a process for merchants to seek a refund of interchange fees
charged on taxes or gratuities if they were improperly assessed.
Prohibits financial institutions from increasing interchange fees on the
non-taxable portion of a transaction to circumvent the intent of this
law.
Section 1202: Imposes a civil penalty of $1,000 per violation for enti-
ties that unlawfully charge interchange fees on taxes or gratuities and
requires reimbursement of improperly charged fees.
Section 1203: Prohibits entities involved in electronic payment trans-
actions from distributing or using transaction data for purposes unre-
lated to payment processing.
Section 3: Contains a severability clause to preserve the bill's
provisions in case of legal challenges.
Section 4: Establishes the effective date as 180 days after enactment.
 
JUSTIFICATION:
Currently, small businesses bear the brunt of interchange fees on elec-
tronic transactions, including the portions representing sales taxes and
gratuities-funds that do not belong to the merchant. These fees increase
costs for businesses, particularly small businesses and restaurants,
which already operate with tight margins.
While consumers do not directly pay interchange fees, these costs are
often passed down through higher prices or service fees, making everyday
purchases more expensive. Additionally, interchange fees on gratuities
reduce the full amount received by tipped workers, as businesses must
cover these extra processing costs.
This bill ensures that financial institutions cannot collect interchange
fees on amounts intended for state and local governments or tipped
employees, protecting businesses from excessive fees and ensuring that
consumers are not indirectly burdened by hidden transaction costs.
 
PRIOR LEGISLATIVE HISTORY:
None.
 
FISCAL IMPLICATIONS:
TBD.
 
EFFECTIVE DATE:
This act shall take effect 180 days after it becomes law