ICYMI: Proposed Arizona Law Would Bring Financial Harm to Consumers, Small Businesses and Community Banks

AFFM in the Arizona Capitol Times: “A fragmented regulatory system harms businesses and taxpayers…forcing businesses to prioritize compliance over growth, innovation and competition.”

In case you missed it, Americans for Free Markets (AFFM) Executive Director John Wittman penned an op-ed in the Arizona Capitol Times Monday discussing the consequences of a proposed law in the Arizona legislature that would undermine the national banking system’s uniform regulatory framework while saddling community and local banks, local businesses and customers with unnecessary costs.

Arizona’s HB 2629 attempts to bypass federal regulations on interchange fees, preventing banks and their networks from charging such fees on the sales tax portion of a transaction. This would require burdensome and costly compliance updates, as the current payments systems that businesses and consumers use does not break up transactions to separate tax.  

As Wittman notes, “Compliance will require businesses to stand up entirely new card-processing systems or adopt cumbersome accounting practices, creating additional costs that will almost certainly be passed on to consumers.”

The bill is similar to one proposed in Illinois, known as the Interchange Fee Prohibition Act (IFPA) — legislation that AFFM has been strongly against (as noted in this Chicago Sun-Times op-ed authored by Wittman last year):

• “In fact, the only bill that has been signed into law — in Illinois, the Interchange Fee Prohibition Act (IFPA) — is already facing litigation. The judge overseeing the case in Illinois issued a preliminary injunction, noting national banks — who comprise almost 90 percent of credit card transactions — are likely preempted under the NBA [National Banking Act]. As a result, state-charted and community banks, small businesses and consumers — namely all those who can least afford it — will bear the brunt of this regulatory burden.”

If the Arizona legislature moves the bill forward, it might also be challenged in court:

• “HB 2629 might evolve in a similar way like the IFPA. As a result, HB 2629 would saddle community and local banks with burdensome regulations, reducing the services they are able to provide to their local customers and businesses. It would also encumber taxpayers with the cost of unnecessary litigation.”

And the bill’s consequences on Arizona small businesses would be considerable:

• “The bill states that if interchange on taxes cannot be removed at the point of sale, banks must provide the amount in credit later. Since networks and banks are unable to do that, barring any changes to the global payments system, the burden will fall on businesses to calculate how much money they’re owed after and then chase down every financial institution to get their credit. Wal-Mart and McDonalds may have resources to do this; a small business? Probably not.” 

Wittman ends the piece urging Arizona lawmakers to reconsider the bill, citing the ongoing litigation in Illinois as a key reason:

• “We urge the Arizona Legislature to take note of the Illinois injunction…There is no reason to consider similar bills in Arizona’s legislature while litigation is pending in Illinois, particularly when, even without any ongoing litigation, the legislation would only overregulate the economy and undermine our free market system.”

Read the full op-ed in the Arizona Capitol Times HERE.