Colorado’s HB25-1282, the Swipe Fee Fairness and Consumer Safeguards Act, is heralded as a victory for small businesses and consumers. In reality, it’s another misguided attempt at government price control that will ultimately harm the companies and consumers it claims to help. The bill represents direct government interference in private market negotiations by prohibiting credit card networks from setting interchange fees in coordination with issuers and banning fees on sales tax and tips. Rather than fostering competition, HB25-1282 risks distorting the payment processing market, driving up costs for businesses, reducing access to credit, and leading to unintended consequences that will be felt across Colorado’s economy.
The Myth of Cost Savings: Who Pays?
Supporters of HB25-1282 argue that it will lower costs for small businesses by reducing the amount they pay in interchange fees (often called “swipe fees”). Yet history and basic economics suggest otherwise.
A similar price control scheme was imposed federally through the Durbin Amendment, a provision of the 2010 Dodd-Frank Act that capped interchange fees on debit cards. Proponents promised it would reduce costs for businesses and consumers alike. Instead, 98% of merchants failed to pass the savings on to consumers, according to a Federal Reserve Bank of Richmond study, and many even raised prices. Meanwhile, banks responded to lost revenue by eliminating free checking accounts, increasing account maintenance fees, and cutting debit card rewards programs. The same scenario will likely play out in Colorado if HB25-1282 becomes law.
A Hidden Tax on Consumers and Small Businesses
When governments impose price caps, the costs don’t just disappear—they shift elsewhere. If banks and payment processors are forced to absorb lost revenue, they will pass these costs on in other ways, such as:
- Higher monthly fees on consumer bank accounts
- Reduced credit access, particularly for low-income individuals
- Higher interest rates on credit cards
- Elimination of cash-back and rewards programs
Credit card rewards are not a free perk: interchange fees fund them. The New York Federal Reserve recently found that 86% of interchange revenue from the six largest U.S. banks goes toward funding rewards programs. By capping these fees, HB25-1282 will inevitably gut rewards programs, leaving Colorado consumers with fewer incentives to use credit responsibly and fewer tools to manage their spending effectively.
Small Businesses Stand to Lose the Most
While proponents claim HB25-1282 protects small businesses, it may put them at a competitive disadvantage compared to larger retailers.
Larger corporations—such as Amazon, Walmart, and Target—already have the leverage to negotiate lower interchange rates with card networks and banks due to their transaction volume. Small businesses, by contrast, lack this bargaining power. If interchange fees are capped, payment processors may recoup their losses by charging higher service fees to smaller merchants with fewer processing options.
Moreover, eliminating swipe fees on sales tax and gratuities sounds like a simple fix, but it creates a massive logistical and compliance nightmare for merchants, processors, and financial institutions. Credit card systems do not currently differentiate between product costs, sales taxes, and gratuities at the transaction level—everything is processed as a single sum. As a result, implementing this change would require extensive, costly reprogramming of payment terminals and software, costs that will ultimately fall on the small businesses that lawmakers claim to be protecting.
The Bill’s Anti-Competitive Nature and Constitutional Risks
HB25-1282 is not an isolated policy—it’s part of a broader, multi-state effort to regulate interchange fees. Colorado is one of at least 17 states pushing similar legislation. This raises serious legal and constitutional questions, including whether these coordinated state actions constitute an unlawful interstate compact that violates the Compact Clause of the U.S. Constitution (Article I, Section 10).
The financial system, including credit card processing, is inherently national and even global in scope. Colorado’s law may conflict with federal commerce regulations by imposing regulations on transactions involving multiple jurisdictions, creating uncertainty for banks and financial institutions. If the federal government has already addressed interchange fees through the Durbin Amendment and the Federal Reserve’s Regulation II, does a state have the authority to impose further restrictions? This question may ultimately be decided in court.
Legal Challenges in Illinois: A Warning for Colorado
Colorado needs to look no further than Illinois to see the legal and economic chaos that awaits if HB25-1282 is enacted. The Illinois Interchange Fee Prohibition Act (IFPA), which mirrors many of the provisions in Colorado’s bill, has already become the subject of fierce legal battles, exposing the inherent flaws in state-level price controls on financial transactions.
A coalition of banking associations and credit unions—including the American Bankers Association, America’s Credit Unions, the Illinois Bankers Association, and the Illinois Credit Union League—has filed a motion for summary judgment seeking to overturn IFPA before it takes effect on July 1, 2025. Their argument? The law creates an unworkable patchwork of regulations, conflicts with federal banking laws, and makes compliance impossible for financial institutions and merchants alike.
The legal battle has already resulted in a preliminary injunction exempting out-of-state financial institutions from complying with the law, meaning that only Illinois-chartered banks, credit unions, and card networks remain subject to its provisions. However, the plaintiffs seek to extend this injunction to cover all participants in the payment card ecosystem, arguing that selective enforcement still indirectly restricts federally protected institutions from conducting business as intended under the National Banking Act.
Payments industry expert Anthony Hayes, testifying on behalf of the plaintiffs, emphasized the impracticality of partial exemptions. He noted that if one financial institution involved in a credit card transaction is granted relief, all entities involved in processing the transaction must also be exempt. Otherwise, he warned, the Illinois law would cause significant disruptions, making compliance virtually impossible for financial institutions, merchants, and payment processors.
With the next hearing scheduled for mid-April, Illinois has become a test case for whether state-imposed interchange fee restrictions can withstand legal scrutiny. Colorado lawmakers should take heed: passing HB25-1282 will likely invite similar litigation, proving that interchange regulation is best left at the federal level where uniform rules prevent the regulatory fragmentation now threatening Illinois. Instead of learning from Illinois’s mistakes, Colorado is poised to repeat them.
Let Markets Work, Not Government Mandates
HB25-1282 is a textbook case of government intervention in the free market—a well-intentioned but economically flawed policy that will harm consumers, small businesses, and financial institutions alike. Just as the Durbin Amendment led to higher costs and fewer consumer benefits, Colorado’s attempt to cap interchange fees will lead to reduced rewards programs, higher banking fees, and potential disruptions for small businesses.
Rather than regulating fees and imposing price controls, Colorado policymakers should focus on encouraging real competition in the payment processing industry. This means fostering an environment where financial institutions compete based on service, innovation, and efficiency—not government mandates.
Opposition
The Southwest Public Policy Institute strongly opposes HB25-1282 and urges lawmakers to reject price controls in favor of market-driven solutions that benefit consumers and small businesses.