Earlier this month, Colorado Governor Jared Polis vetoed Senate Bill 26-134, legislation that would have prohibited interchange fees from being charged on the sales tax portion of credit and debit card transactions. While supporters framed the proposal as a way to reduce costs for merchants, the bill threatened to create significant economic disruption while offering little benefit to consumers.
As Governor Polis demonstrated, government decisionmakers ought to be cautious when considering intervening in complex markets that are already delivering value to consumers and businesses. Payment networks operate as highly integrated systems that facilitate billions of transactions each year, providing fraud protection, security, credit access, rewards programs, and payment processing infrastructure. Attempts to carve out specific portions of transactions for special regulatory treatment risk undermining the efficiency and reliability of those systems.
Supporters of SB 26-134 argued that businesses should not pay interchange fees on sales taxes because those funds are ultimately remitted to the government. But in reality, the legislation would have required payment networks and financial institutions to redesign systems built for nationwide commerce in order to comply with a Colorado-specific mandate. The measure would create compliance challenges, increase costs, and likely trigger years of litigation similar to the legal battles already surrounding the State of Illinois’ interchange fee law. As Scott Talbott, SVP of the Electronic Transactions Association, stated:
“The bill would upend the complex, efficient, and global payments industry… It would force all players to divert critical resources away from innovation to implementation—with the costs outweighing any perceived benefits.”
Just as important, there’s little reason to believe the savings would ultimately reach consumers. Federal efforts to regulate interchange fees through the Durbin Amendment were sold as a way to lower prices, yet studies have found that much of the savings never materialized for consumers. Instead, financial institutions responded by reducing services, eliminating rewards programs, and increasing other fees. The result was market distortion rather than consumer relief.
Colorado’s proposal risked repeating those mistakes at the state level. Credit card rewards, fraud protections, and payment innovations are funded in part through interchange revenue. When the government artificially restricts those revenue streams, the costs don’t simply disappear. They are often shifted elsewhere through reduced benefits, higher fees, or diminished investment in payment infrastructure. Consumers ultimately bear much of that burden.
The veto by Governor Polis sends a welcome signal that Colorado remains committed to practical, market-oriented policymaking. Rather than intervening in the mechanics of the payment system, lawmakers should focus on policies that directly improve the business climate: lower taxes, reduced regulatory barriers, and a more predictable economic environment.
Economic growth isn’t achieved through increasingly complex regulations, but by allowing markets to function, encouraging competition, and maintaining policies that reward innovation. Colorado’s veto of SB 26-134 is a reminder that sometimes the best policy decision is knowing when the government should step back and let the market work.
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