Legislation threatens consumer privacy, retailers say

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Legislation under consideration in the Pennsylvania legislature raises serious consumer privacy concerns and could unduly burden small businesses, a statewide coalition of bankers and credit unions said Monday.

House Bill 2394 would prohibit financial institutions from collecting interchange on the sales tax portion of credit and debit card transactions. The bill could force merchants to collect sales tax as a separate transaction, members of the coalition said, and require two transactions for every taxable sale. It could also send payment companies information about a person’s shopping habits, creating consumer privacy issues.

“The nation’s largest retailers are jeopardizing the safety and convenience of our electronic payment system,” Kevin Shivers, president & CEO of the Pennsylvania Association of Community Bankers, said. “They stand to make millions of dollars at the expense of consumers and small businesses while disrupting the payment system that safeguards our credit cards.”

The legislation was proposed by state Reps. Greg Scott (D-Norristown) and Steve Samuelson (D-Bethlehem) and was forwarded to committee on June 10. A committee vote is scheduled for June 12. Scott and Samuelson said the legislation would bring fairness back to the state’s tax system by prohibiting swipe fees from applying to the Sales & Use Tax portion of the transactions. The legislators said the bill would relieve small businesses of the burden of having to pay an additional cost to collect and remit taxes.

“According to recent estimates by the Federal Reserve, about a third of all purchases in the United States are paid for by credit card,” the legislators said in a memo to House colleagues. “That may not surprise most, but unknown to many consumers, merchants are charged a “swipe fee” applied as a percentage of the total transaction – including the state Sales & Use Tax – every time a customer pays by credit card. Relieving our local merchants of this undue financial burden can make the critical difference for so many businesses already operating on thin margins.”

Critics of the bill said it would add undue burdens to small businesses though.

“Proposals like this one to carve out processing costs on the sales tax portion of transactions would completely disrupt the system,” said Duncan Campbell, President & CEO of the PA Bankers Association. “It would inconvenience consumers and force small businesses to pay a fortune to try to comply, if they even can.”