Restaurant groups press for swipe-fee reforms; payments industry warns of unintended harms

Restaurant and small-business representatives told the House Committee on Corporations on March 12 that interchange fees charged when customers pay by card unfairly erode merchant receipts and ought to be addressed by state law.

Nick Feeney, executive director of the Rhode Island Liquor Operators Collaborative, said that when a merchant collects $100 in sales tax on a card payment they may only capture $97 after processing fees, leaving the small business to absorb the shortfall. "As a small business owner, every dollar matters," Feeney testified, urging reforms and pointing to Illinois and other states as precedents.

Payment-industry witnesses pushed back. Steve Rauschenberger, speaking for the Electronic Payments Coalition, explained that interchange revenue funds fraud protection, card issuance and other services; he said altering interchange risks harming small banks and credit unions. "For that amount of money, they take the unsecured loan, they issue the card, they do the customer service, they do the fraud protection," Rauschenberger said.

Scott Talbot of the Electronic Transactions Association similarly cautioned that the payments sector supports jobs and economic activity in Rhode Island and that the system’s complexity means policy changes could have unintended consequences. He noted that some states allow merchants to surcharge customers and that interchange typically averages around 2 percent of a transaction.

Credit-union testimony underscored the local stakes. Dave Pellegrino, senior vice president and general counsel at Navient (testifying for Rhode Island credit unions), said interchange revenue helps fund fraud losses and community programs, warning that the bill could lead to worse rates and reduced services for more than 500,000 local members.

Hospitality representatives urged a solution. Bill Walsh of the Rhode Island Hospitality Association called the bill a fairness issue for restaurants and hotels and said sponsors are prepared to work on technical fixes to address industry concerns.

Committee members asked about the legal status of recent cases (including Illinois) and whether technical fixes — for example, using level‑2 data to split tax and tip in point‑of‑sale systems — could make compliance feasible. Witnesses agreed the issue raises technical and legal questions; Rauschenberger noted an Illinois ruling is on appeal and could take more than a year to be finally resolved.

The committee did not take a vote at the hearing and signaled it intends to receive follow-up technical proposals and possible language adjustments.