Legislature(2025 - 2026)BARNES 124
04/09/2025 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB50 | |
| HB171 | |
| HB70 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 50 | TELECONFERENCED | |
| += | HB 171 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 70 | TELECONFERENCED | |
HB 171-INTERCHANGE FEES: TAX & GRATUITY
3:32:46 PM
CO-CHAIR FIELDS announced that the next order of business would
be HOUSE BILL NO. 171, "An Act relating to interchange fees on
tax and gratuity; and relating to the Alaska Unfair Trade
Practices and Consumer Protection Act."
3:33:06 PM
CO-CHAIR FIELDS opened public testimony on HB 171.
3:33:21 PM
MICHAEL CERVATES, Owner, The Banks Alehouse, testified in
support of HB 171. He stated that interchange fees are charged
on tax and gratuities. He reported that there is no sales tax
in Fairbanks, but that there is an alcohol tax. He noted that
he pays for the interchange fees and does not take it out of his
workers' tips. He noted that, since COVID-19, both the cost of
food and labor have increased for his restaurant. He stated
that profit margins for restaurants typically sit between 1 and
2 percent. He echoed a prior hearing, noting that interchange
fees constitute between 70 and 90 percent of the overall fees
charged by a credit card. He reported that his restaurant, at
70 percent of the total fees, loses approximately $53,900 in
interchange fees [annually]. He remarked that that number was
roughly equivalent to three full-time employees. He stated that
he would be able to invest money lost from interchange fees back
into his business or his community.
3:37:11 PM
GLENN GROSSMAN, Payments Consultant, Electronic Payments
Coalition, testified in opposition to HB 171. He stated that he
was a professor of finance by trade. He stated that the modern
electronic payment system was robust and efficient, noting that
all merchants could accept payments from vendors of their
choice. He stated that merchants receive efficiency, and fraud
protection as benefits. He stated that interchange fees cover
the cost of the aforementioned. He asserted that businesses
could cover the cost of interchange fees in other ways, such as
offering discounts through cash transactions or charging a
credit card surcharge fee. He noted that the proposed
legislation had not been implemented in any other state. He
asserted that most businesses would need at least 10 years to
"break even" in order to update their point-of-sales systems
were HB 171 to become law. He asked committee members to take
into consideration consumer convenience, commerce for merchants,
and the cost of enactment on small businesses. He asserted that
the proposed legislation would place the burden on small
businesses, and that large retailers would benefit.
3:40:12 PM
REPRESENTATIVE SADDLER asked about the profit margin for banks.
He noted that the profit margins for restaurants and retailers
are approximately 1 to 2 percent.
MR. GROSSMAN responded that banks do not profit from interchange
fees and asserted that banks actually lose money on interchange
fees. He noted that the only way a bank can generate profit in
credit card business is to have customers "revolve on their
debt."
REPRESENTATIVE SADDLER asked for confirmation that banks lose
money on credit cards.
MR. GROSSMAN replied that banks lose money unless customers
revolve debt. He stated that banks only profit on balances and
not paid on monthly statement for credit cards.
MR. GROSSMAN, in response to an additional question from
Representative Saddler, stated that interest rate varies based
on client or cardholder and issuer.
3:43:36 PM
CO-CHAIR FIELDS asked the largest members by market share of the
Electronic Payments Coalition.
MR. GROSSMAN stated that banks are largest issuers of credit
cards and stated that the interchange fees go back to the banks,
such as Capital One, Bank of America, JP Morgan Chase, which he
noted were the largest issuers. He commented that credit unions
and community banks are also issuers and face the same economics
as large banks.
CO-CHAIR FIELDS asked how much Capital One, Bank of America, and
JP Morgan Chase collect in interchange fees from Alaska.
MR. GROSSMAN replied that he did not have that data. He further
noted that information was private to the institutions.
3:45:31 PM
MR. GROSSMAN, in response to a question from Representative
Saddler, replied that he was a professor at Grace College, in
Winona Lake, Indiana.
REPRESENTATIVE SADDLER asked if Mr. Grossman was employed by the
Electronic Payments Coalition.
MR. GROSSMAN stated that he was a subject matter expert, noting
that he worked in electronic payments for nearly 20 years. He
stated that he acted more in the capacity of a consultant to the
Electronic Payments Coalition.
3:46:41 PM
DOUG LADENBURGER, Director of Treasury Management, Northrim Bank
& Alaska Banker Association (ABA), testified in opposition to HB
171. He asserted that the proposed legislation would introduce
an inefficient and unmanageable process for local businesses and
financial institutions. He noted that 99 percent of businesses
in Alaska were small businesses who employed over 50 percent of
the state's private workforce. He asserted that, were HB 171 to
become law, businesses and service providers would be required
to implement timely and costly new point-of-sales solutions. He
asserted that this requirement could tank small businesses. He
asserted that transactions through cash or check could be more
expensive than interchange fees on a credit card transaction.
He cautioned that, were HB 171 to become law, there could be
unexpected errors resulting in "unexpected fees and compliance
challenges." He further cautioned that e-commerce businesses
may not want to conduct business in Alaska. He offered his
belief that the process for credit card transactions was
effective, efficient, and secure and additionally argued that HB
171 "would disrupt the process for small businesses and our
local financial institutions."
3:49:43 PM
REPRESENTATIVE SADDLER asked for the definition of a point-of-
sale solution and asked whether implementation would be a one-
time cost.
MR. LADENBURGER explained that point of sales would be whatever
equipment or system a business uses to accept and process credit
cards, noting that there is a wide variety of systems. He noted
that e-commerce only requires a computer for transactions. He
asserted that HB 171 would create a requirement that a small
business would need to implement a system that would separate
the tax and the gratuities. He opined that HB 171 would cause
many difficulties for businesses and local financial
institutions because it is attempting to force change on an
automated system.
REPRESENTATIVE SADDLER asked how consumers would know the
difference.
MR. LADENBURGER replied that, if a business decided not to
implement a new system, they might require consumers pay for
their goods and services with a credit card and the tax and/or
gratuities with a check or cash.
REPRESENTATIVE SADDLER commented that Mr. Ladenburger was
presuming that businesses would entirely abandon credit card
sales, which he opined was "realistic and hard to believe."
3:52:20 PM
CO-CHAIR FIELDS opined that the notion that machines or software
would be unable to differentiate between a charge and a tip was
implausible.
3:52:36 PM
MARK BURGESS, President & CEO, Credit Union One, testified in
opposition to HB 171. He stated that Credit Union One provides
financial services for over 96,000 members in Alaska, noting
that Credit Union One recently opened branches in Wasilla and
Kotzebue. He noted that they would be opening a branch in
Skagway and remarked that Credit Union One was the only option
credit union option for the communities of Skagway and Kotzebue.
He stated that similar legislation has been introduced 72 times
in 31 states since 2006, passing in only one state Illinois.
He further stated that the federal district court granted an
injunction against that act in Illinois in December [2024],
finding that it is likely to violate the National Banking Act
and would not apply to federally chartered banks and credit
unions. He asserted that the proposed legislation would then
only apply to state-chartered banks and credit unions. He
emphasized that Credit Union One is the only state-charted
credit union in Alaska and asserted that the proposed
legislation would impose increased costs and leave state-
chartered institutions at a disadvantage when competing with
federal institutions. He asserted that HB 171 would create, at
best, a two-tiered system for banks and credit unions, and
encouraged committee members to vote no.
3:54:14 PM
CO-CHAIR FIELDS asked how much money from interchange fees is
going to large banks versus small local unions.
MR. BURGESS responded that he did not have that data.
3:54:41 PM
TIM SULLIVAN, President, Alaska Credit Union League, testified
in opposition to HB 171. He explained that the Alaska Credit
Union League was composed of nine Alaska credit unions that
provide financial services for over 500,000 Alaska residents.
He explained that credit unions are member-owned financial
institutions and do not have shareholders. He explained that,
for credit unions, fees are used to cover credit union
operations and provide products and services for members. He
stated that fraud protection was a critical service that was
covered by interchange fees. He stated that merchants are not
responsible for fraud, and under the Fair Credit Billing Act,
the cardholder is only responsible for a maximum of $50. He
remarked that most card issuers offer zero liability policies on
their cards. He reported that credit card fraud in 2025 was
estimated to be approximately $12.5 billion, much of which would
be returned to consumers due to the "efforts and infrastructure
paid for and built by credits unions and banks through
interchange fees." He stated that the Alaska Credit Union
League was opposed to HB 171.
3:56:02 PM
REPRESENTATIVE SADDLER asked whether customers have the ability
to influence rates of interchange fees.
MR. SULLIVAN replied that the financial provider and the
vendors/restaurants, not the cardholder members, decide
interchange fees.
REPRESENTATIVE SADDLER asked whether it would be possible for
card providers to charge only a fee for fraud protection.
MR. SULLIVAN replied that percentages have not increased in
approximately 10 years. He stated the reason that credit card
companies have been increasing their collection of fees is due
to people using their credits with more frequency.
REPRESENTATIVE SADDLER illustrated his question with a scenario,
asking if someone has $100 restaurant bill, would it cost more
for the credit card provider to run card with a 1 percent tip
versus 25 percent tip.
MR. SULLIVAN replied that it is the same flat percentage rate.
3:58:59 PM
CO-CHAIR FIELDS, after ascertaining that there is no one else
who wished to testify, closed public testimony on HB 171.
3:59:09 PM
REPRESENTATIVE COULOMBE asked the sponsor to comment on the
credit union issue. She wondered if they could amend the bill
to avoid federal litigation.
3:59:43 PM
REPRESENTATIVE ELAM responded that he has heard small businesses
throughout the country are trying to fight back against
interchange fees. He opined that banks have a big voice. He
could not guarantee that HB 171 would not go to litigation. He
stated that other credit unions and banks within the state of
Alaska are profiting from tax collection and tips and thus
profits made from taxes and tips would decrease. He commented
that small businesses would no longer be tax collectors. He
further stated that small businesses would not lose any money
from the actual sale of their goods and merchandise.
4:01:26 PM
CO-CHAIR FIELDS commented, "Big banks will fight tooth and nail
to keep money flowing into big banks."
4:01:36 PM
REPRESENTATIVE COULOMBE stated that she has heard big banks
warning that consumers would lose reward programs and fraud
protection should HB 171 become law. She further stated that
she had businesses' best interests in mind and wanted to see the
full picture.
CO-CHAIR FIELDS requested a breakdown of what different credit
card fees pay for.
REPRESENTATIVE COULOMBE remarked that it was unclear how what
percentage of the interchange fees were going towards services
like fraud protection.
[HB 171 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 70 Amendment 1 (I.5).pdf |
HL&C 4/9/2025 3:15:00 PM |
HB 70 |
| HB 70 Amendment 2 (I.7).pdf |
HL&C 4/9/2025 3:15:00 PM |
HB 70 |
| CCAlaska HB171 Oppose4925.pdf |
HL&C 4/9/2025 3:15:00 PM |
HB 171 |
| HB 171 GuardYourCard_Alaska_Toolkit_4.8.25.pdf |
HL&C 4/9/2025 3:15:00 PM |
HB 171 |
| HB 171 Opposition - 2025-04 AK deck v1.pptx |
HL&C 4/9/2025 3:15:00 PM |
HB 171 |
| 2025-04-07 AK HB171 EPC written testimony.pdf |
HL&C 4/9/2025 3:15:00 PM |
HB 171 |