Small Business Rundown
Small Business Rundown
Ep. 87: Credit Card Swipe Fees Have a Nationwide Impact
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Credit card swipe fees have become one of the top overhead costs for small businesses, and small business owners nationwide need legal protection from these rapidly increasing fees. NFIB’s Rosemary Elebash, Alabama State Director, and Beth Milito, Vice President and Executive Director of the NFIB Small Business Legal Center, discuss a recent win for small business in Alabama and activity in state legislatures, the courts, and Congress. Listen to the full podcast for insight from the experts on what small businesses can expect to be done about swipe fees in the near future.
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I mean, every time a customer taps or swipes, a small business is paying a hidden tax. And it's one they can't negotiate, control, or avoid.
SPEAKER_00The Small Business Rundown is the official podcast of the National Federation of Independent Business, the member-driven voice of small business. Every two weeks, a new episode offers resources for small business owners and information on relevant laws and regulations. NFIB and our members advocate to keep U.S. small businesses strong and independent in Washington, D.C., all 50 states, and the nation's courts.
SPEAKER_01Welcome to the Small Business Rundown. I'm Josh McLeod, NFIB's Director of Federal Government Relations. I'm here to discuss the billions of dollars spent on credit card swipe fees every year. Swipe fees are a major problem and a growing burden for small business owners. According to one estimate, swipe fees amount to a$198 billion annual cost to small businesses and consumers. NFIB is fighting swipe fees at the state and federal levels and also in the courts. We're going to talk about all three elements today. Joining me to share about a recent win for small businesses in Alabama is NFIB State Director Rosemary Ellabash. We've also got Beth Melito, NFIB's Executive Director of the Small Business Legal Center, to share a perspective about action in the courts. Lastly, we'll discuss NFIB's efforts to enact the Credit Card Competition Act in Congress. Thank you both for joining me.
SPEAKER_02Josh, thank you for having me on today. Thanks, Josh.
SPEAKER_01Great to have you both. Rosemary, we'll start with you. Could you tell us a little bit about what's been going on in Alabama and how you all came across this issue at the state level?
SPEAKER_02Yes, it's kind of an interesting background. I was actually talking with the Alabama Department of Revenue about several issues this past summer. And in the conversation, they said to me, You know that your members are supposed to be collecting a sales tax on the transaction fee on a credit card purchase. And I said, No, I was not aware of that. I said, When did we pass that statute? And they said, We didn't pass a statute. And I said, Well, when did you implement the rule? And they said, Well, we didn't implement a rule, it's our policy. And I said to them, we do not collect taxes in the state of Alabama based on your policy. Either the legislature is going to pass a statute or you're going to announce a rule. And so immediately I knew that we had to introduce a bill to say to the Department of Revenue, you may not collect a sales tax on a transaction fee.
SPEAKER_01Very good. What do you hear from our members, NFIB members, small business owners in Alabama, that really gives a lot of force to the efforts at the state level?
SPEAKER_02One of the things I learned when this conversation really started that business owners now say that credit card fees are their third largest expenditure. So you have in payroll, and now you have inventory, and now you have these credit card fees. I do know of one small business owner who happens to own a men's clothing store. Very small, six people work there. His credit card transaction fees are now$43,000 a year. That is a salary for another employee in that small town. So the numbers are growing. Business owners are becoming very alert to what they're paying. And this adds to their bottom line. On the sales tax, Josh, one of the things that was so alarming about this, business owners didn't even know they were supposed to be collecting it. So that was a real push for us to say to revenue, you can't collect this.
SPEAKER_01Absolutely. I can uh can see how that would create a lot of problems for small business owners. So we hear a lot of fear-mongering in Washington from the opposite side on this, of the folks that want to protect the status quo. What did you hear in terms of the side that was hoping to reform swipe fees? And what are you hearing from folks on the other side of the debate?
SPEAKER_02The other side of debate, our biggest opposition was the Alabama League of Municipalities. So they called a public hearing in the House and the Senate. I testified in both public hearings, and it was a real battle, I've got to tell you, on the Senate and the House floor. So they worked very hard. They said we were taking money from their bottom line. And I said, Well, prove to me where you're collecting it. And they couldn't come up with a real number based on businesses didn't even know they were supposed to be collecting and remitting it. So there was not a real fiscal note on this. It was more of a projection of what they think they could collect. And it was a battle this session. I've had mayors who are extremely angry. They are attacking legislators who voted with their small business owners in their town. And I've offered to go meet with those mayors and explain to them that we are not going to collect taxes in this state based on policy.
SPEAKER_01Rosemary, tell listeners what this victory in Alabama means for small businesses.
SPEAKER_02The credit card sales tax transaction fee was a huge win for small business owners in Alabama. And NFIB was there at the very beginning, and we created a coalition of other like-minded trade groups that we worked together. And I will tell you, all 140 members of the legislature were contacted by a member of the coalition about where we stood on this bill. So there was no surprise about where this bill was. I will tell you that Lieutenant Governor Ainsworth, Senate Majority Leader Gudger, and the Speaker of the House, Nathaniel Ledbetter, were all on our team and they helped push this bill on the special order calendar the 29th out of the 30th legislative day. So when I say this was a push, it was a push, and leadership stood with small business owners on this issue.
SPEAKER_01That's awesome. It's great to hear that they stood with small businesses and thank you for your leadership in Alabama.
SPEAKER_02Thank you.
SPEAKER_01Great. With that, we're gonna ask Beth to give us an update on what's been going on at the federal level in terms of rulemaking.
SPEAKER_03Thanks, Josh. And I just have to circle back to Rosemary's comment there. I think it's sort of ironic that she had the municipalities saying that small businesses were taking money from the municipalities' bottom line there, right? When our members are paying so much in taxes to those municipalities. I just I find that rather, yeah, rather ironic and I guess a sad funny comment there. So that is what we're up against. And Josh, as you know, I mean, credit card swipe fees are a major pain point for small businesses. And that's why NFIB at the federal and now the state level is investing so much in our advocacy efforts to try to lower these fees because our members operate on such razor thin margins already. And the thing with swipe fees is they have very little control over them, which is what is so frustrating to our members there. The typical swipe fee ranges from two to four percent per transaction. So you can see how it adds up very quickly. And again, for small businesses with slim margins, that eats up a large share of their profit, depending on the size of the transaction there. And it hits businesses in all industries too. So think of all the businesses now that take credit cards, service industries, retail, restaurants, everybody takes credit cards now too. And the fees are large because they can't negotiate them, right? So Visa MasterCard and the banks are setting the fees, and our members just do not have the leverage to negotiate lower rates. And it's all very frustrating. So on the legal front, there, one thing NFIB has done, and we just filed a brief this week, is challenging the legality of the Federal Reserve's interchange fee cap. And we have argued in two federal cases now that the Federal Reserve has set the fee cap essentially too high. So it's allowing these banks, credit card companies, to charge too much. So that is one angle we have taken here at NFIB is to sort of go after the regulators when it comes to the fees that they are allowing banks to charge there. So that's point one. And then more recently, we just learned the end of last month, actually on April 24th, that the US Treasury, much to our surprise, really, issued a rule that would block state laws on credit card swipe fees. So that was an unfortunate development, too. But again, another rule that NFIB will be pushing back against. We will be filing comments in opposition to that rule, too. And so I think more to come on that front there, too. But again, just to reiterate that we are sort of fighting this on all fronts here.
SPEAKER_01It's great to see. Some of the stories that we hear from our members are crazy. I mean, I'm looking at one right now, it's almost$700,000 in swipe fees, and that's for a haircuttery in Ohio. We're looking at huge costs for small businesses. We've heard from a supermarket in Springfield, Pennsylvania, they spent$128,000 in swipe fees in 2025. Other members have shared similar stories. A restaurant in Memphis, Tennessee was over$58,000. Another grocer, small retailer in Wisconsin, it was$30,000. A larger direct appliance company spent$76,000 in swipe fees. These are huge costs for that business in Texas. It was their largest expense. It was above rent. It was above electricity. It was above storage containers, phone, internet, everything. It was a huge expense for them. These businesses have shared how this is preventing them from expanding their businesses, preventing them from moving into a larger facility. It's preventing them from hiring additional employees, offering health insurance. And we hear that from, as best said, across industry. The swipe fees are a growing problem. They've doubled since 2012. And so that is a massive, massive cost to small businesses. Sometimes it's the second largest operating expense. So thankfully, we've got great leaders in Congress that have introduced a bill called the Credit Card Competition Act in the Senate. That is led by Senator Marshall and Senator Durbin. There's a House version of that called HR 47035 that was introduced by Congressman Gooden and Lofgren of California. And all that does is say we want to give small businesses the choice between more than one credit card processing network. And so a very simple bill, but it faces strong opposition from large financial institutions, from Visa MasterCard, uh, those processing networks that benefit from these swipe fees that are really hurting small business owners and consumers. So we continue to push hard for that. I urge members listening, please go to our action alert in the show notes.
SPEAKER_03Yeah, because their stories are very impactful, Josh, as you know, and as Rosemary knows too. I mean, every time a customer taps or swipes, a small business is paying a hidden tax. And it's one they can't negotiate, control, or avoid. And that's where the federal bill, I think, would be so helpful because it would allow them to negotiate somewhat or have more transparency in the process there too. And in the state bill, you know, it would allow at least minimize some of this hidden tax on sales tax and the tips too. It's money they don't even get in their pocket, I guess is what I'm saying. And so I think the state legislation is very important. And I would like to see other states be able to take it and run with it and enact it. So that's why, yeah, our members' voices are very important.
SPEAKER_01Yeah, for sure. And we do see action at the state level in Delaware, I think New Mexico, Colorado, they're all in the process of looking at swipe fees at the state level. So we'll see how that helps federal efforts. But one thing that's hard to ignore$198 billion in swipe fees every year is a massive, massive cost to small businesses. And it's very difficult for members of Congress to say, yeah, you're right, this is not a problem. Right. So we'll continue to advocate for that in Washington and hope to give all you small business owners and consumers relief. So we'll keep working on it. And as I mentioned, please share your stories with us. So, Rosemary, with the great momentum in Alabama, what's what's your message to lawmakers and Congress from Alabama?
SPEAKER_02Josh, it's plain and clear. Small business owners need this relief. 99.4% of businesses in Alabama are Main Street family-owned businesses, and they are paying the price for very large corporations every single day. But they're the ones that are keeping up the entire tax base in the state of Alabama. Nobody pays them to come here, they're here every single day. So the entire Congress needs to be behind this, and certainly the Alabama delegation needs to sign on.
SPEAKER_01Absolutely. Can't stress that enough. The Credit Card Competition Act, the House bill has six co-sponsors, the Senate bill has three. So we need to hear from you. We need to hear from small business owners, and most importantly, members of Congress need to hear from you as well on the importance of increasing competition to swipe fees. If you're a small business owner, please take a few minutes to fill out the action alert in the show notes. It's critical that we hear from you. It's critical that members of Congress hear from you on this important issue. Rosemary, any final thoughts for listeners?
SPEAKER_02One of the issues that businesses in Alabama face is the legislature passed a statute that allows cities and counties to hire third-party audit and collection firms. And they are the ones that are actually auditing and collecting for about 400 cities. And there are like 468 cities in Alabama. So this credit card sales tax is actually auditable. And one of the things that our members are very fearful of are these third-party audit and collection firms. So this law that passed gives them the authority to say you didn't have a statute before, this is the statute, you may not audit me on sales tax on transaction fees. So that's an important component for members. And we have provided talking points to our members here in Alabama, and they've got those letters. I've also told them if you get audited by one of these firms, call me. I will provide you with a statute that says you can't audit me on this. So this is an important component, and it gives our members some comfort to know that they've got this statute now that backs them up.
SPEAKER_01That's awesome. Yeah, such a relief for small business owners to have that, Rosemary. Thank you for all your work there. Beth, anything else?
SPEAKER_03So here at NFIB, we will continue to push back against any federal attempt to overturn these rules. And our state team is going to, as I said, I hope have success in having other states pick them up and pass them.
SPEAKER_01Absolutely. I think you're exactly right. It doesn't make sense why the president would say these swipe fees are out of control, and then his own administration is trying to undercut that message. So hopefully there will be a realization that there's got to be some semblance of unified messaging here, and we can have OCC come to grips with what the impact of their rule is. At a high level, we've discussed the cost to merchants, to small businesses, to consumers. These swipe fees have more than doubled since 2012. So we need relief from Congress. We need the administration to work with Congress to provide small business owners with relief from these massive swipe fee costs right now. For listeners who want to take action and urge Congress to lower credit card swipe fees, today's show notes include a link to send messages to your lawmakers. You'll also find links to learn more and stay up to date on this issue. Thank you, Beth. Thank you, Rosemary, for joining us today on the Small Business Rundown to talk about the impact of swipe fees on small businesses. Thank you for your leadership to really give relief to small business owners nationwide and um appreciate you joining us today.
SPEAKER_02Thank you, Josh. Thanks, Josh.
SPEAKER_00Thanks for joining us for this week's episode of the Small Business Rundown. Your continued support helps us amplify the issues that matter most. If you like this episode, please help small business owners find the podcast by giving it a rating, like, or review. You can find us at nfib.com and on YouTube, X, LinkedIn, Instagram, and Facebook.