New Mexico’s House Bill 476, the so-called Price Fixing Prohibition, Consumer Transparency, and Tax Fairness Act, is an audacious attempt to regulate financial markets under the guise of consumer protection. While framed as a necessary step to lower costs for businesses and consumers, the bill’s actual effect is a stealth price control threatening to upend the state’s financial ecosystem.
By selectively capping interchange fees on the sales tax and gratuity portions of credit card transactions, the legislation effectively reduces the total interchange fees that financial institutions can collect—without explicitly declaring a cap on the entire transaction. This clever mechanism allows New Mexico lawmakers to sidestep federal regulatory authority while still imposing a form of rate-setting that could have widespread economic consequences.
The Clever Loophole
Interchange fee regulations fall under federal jurisdiction, as they govern how card networks like Visa and Mastercard operate across state lines. However, New Mexico’s HB 476 circumvents this by capping fees on a specific portion of a transaction rather than on the full amount.
This matters because credit card processing systems treat transactions holistically, meaning there is no built-in mechanism to differentiate and apply different fee rates to line items like taxes or tips. The state is forcing card issuers and payment processors into a no-win situation by legally prohibiting interchange fees from applying to these portions. Either they absorb the revenue loss—which is unlikely—or restructure fees elsewhere, leading to higher consumer costs in other areas.
This workaround is not a simple tweak to the system; it is a direct attempt to impose price controls without triggering federal preemption. The bill forces financial institutions to provide part of their service for free, an approach that, if widely adopted, could unravel the economic model underpinning modern electronic payments.
The Ripple Effect
Advocates of the bill claim that merchants will save money by avoiding interchange fees on sales tax and tips. However, history and basic economics suggest that these savings will not trickle down to consumers. Instead, the financial sector will adjust in predictable ways:
Higher Banking Fees
Banks and credit unions rely on interchange revenue to support services like free checking accounts and fraud prevention. If this revenue declines, consumers will likely see an increase in monthly fees or the elimination of low-cost banking options.
Reduced Access to Credit
Similar to the effects of the Durbin Amendment’s debit card fee cap, smaller financial institutions may reduce their credit offerings, particularly for lower-income consumers who are already disadvantaged when seeking credit.
Higher Costs for Small Businesses
While big-box retailers might find ways to benefit, small businesses will likely see their merchant service agreements become more expensive as payment processors compensate for lost revenue elsewhere.
Elimination of Rewards Programs
Interchange fees help fund cashback and points-based rewards programs. With reduced fee revenue, issuers may cut these incentives, removing a popular benefit many consumers rely on to offset expenses.
Lessons from the Durbin Amendment
The economic damage caused by New Mexico’s HB 476 is not hypothetical. The 2010 Durbin Amendment, which capped debit card interchange fees nationwide, had immediate and long-term adverse effects. A 2022 Government Accountability Office (GAO) report found that 65% of noninterest checking accounts would have remained free if the Durbin Amendment had not been implemented. Instead, banking fees soared, and many low-income consumers lost access to free financial services.
Furthermore, merchants did not lower prices as promised. A study from the Federal Reserve Bank of Richmond found that 98% of retailers either kept prices the same or raised them after the Durbin Amendment took effect. The businesses that benefited were overwhelmingly large chains, while small businesses, community banks, and credit unions struggled with the policy’s unintended consequences.
New Mexico’s bill risks repeating these mistakes at the state level, with the added burden of disrupting an already complex, highly regulated payments system.
The Free-Market Alternative
Instead of meddling with the mechanics of payment processing through legislative tricks, policymakers should focus on fostering a competitive financial services market. Allowing market forces to dictate pricing ensures financial institutions remain incentivized to offer competitive services without artificial constraints. If legislators are genuinely concerned about reducing business costs, they should focus on tax and regulatory reform rather than injecting instability into the payment system.
New Mexico’s HB 476 is a masterclass in regulatory overreach disguised as consumer advocacy. By exploiting a loophole in the payment processing system, the state effectively capped interchange fees without formally doing so, avoiding direct federal oversight while distorting market dynamics. The consequences will be far-reaching: higher banking fees, reduced credit access, increased costs for small businesses, and elimination of rewards programs that consumers rely on.
Rather than following the failed playbook of the Durbin Amendment, New Mexico should abandon this misguided policy and pursue market-driven solutions that benefit consumers and businesses alike. Economic prosperity comes not from hidden price controls but from policies encouraging innovation, competition, and voluntary exchange.