Colorado Governor Vetoes Bill to Cut Credit Card Swipe Fees on Sales Tax

DENVER — Colorado Governor Jared Polis on Wednesday, June 3, vetoed a contentious bill that would have prohibited financial institutions from charging interchange fees on the sales tax portion of credit and debit card transactions, a move celebrated by credit unions but decried by small business advocates.

The legislation, Senate Bill 26-134, aimed to provide financial relief to merchants, particularly in the restaurant and retail sectors, who argue they are unfairly charged processing fees on tax revenue they simply collect and remit to the state. The bill passed the state Senate by a narrow 18-17 vote and the House 44-20 before landing on the governor’s desk.

Supporters of the measure argued that it would have saved Colorado businesses thousands of dollars annually. Interchange fees, commonly known as swipe fees, typically range from 1% to 4% of a customer's total bill. According to a report from payments consulting firm CMSPI, Colorado merchants paid a total of $2.1 billion in swipe fees in 2024, with an estimated $218 million of that amount being fees charged on sales tax alone.

Advocacy groups like the Colorado Restaurant Association championed the bill as a matter of fairness. Chris Strowmatt, general manager of Denver’s Blue Bonnet Restaurant, expressed frustration with the veto, telling The Colorado Sun that his establishment paid $62,000 in swipe fees last year. “This is an example of not paying attention to what the small businesses are telling you and instead choosing big business over your true constituents,” Strowmatt said in reaction to the news.

However, the bill faced fierce opposition from a coalition of financial institutions, including the GoWest Credit Union Association, America's Credit Unions, and the Defense Credit Union Council. Opponents dubbed the measure the “Credit Card Chaos Bill,” warning it would cause massive disruption to the state's payment ecosystem. They argued that isolating the sales tax portion of a transaction for fee calculation purposes was not a simple adjustment. Instead, they claimed it would necessitate a complete overhaul of payment networks, merchant point-of-sale systems, fraud-prevention operations, and dispute-resolution processes.

“This veto protects Colorado consumers from unnecessary disruption and preserves a secure, efficient payments system,” said Troy Stang, President and CEO of GoWest Credit Union Association, in a statement. He added that credit unions, which serve over 2.8 million Coloradans, support policies that genuinely lower costs for families and small businesses without jeopardizing the payments infrastructure.

In his veto letter, Governor Polis acknowledged the concerns of small businesses but ultimately sided with those warning of instability and legal challenges. “The bill presents too much legal risk to Colorado’s business environment and consumers, with limited upside for our small businesses, for me to be comfortable signing,” the governor wrote.

The debate in Colorado mirrors a broader national conflict over interchange fees. A similar law, the Illinois Interchange Fee Prohibition Act, was signed in 2024 and was immediately met with a lawsuit from banking and credit union groups. Opponents of the Colorado bill pointed to this ongoing litigation as a sign of the legal quagmire the state would have entered.

Scott Simpson, President and CEO of America’s Credit Unions, praised the veto as a “principled stand against this costly and chaotic policy.” He argued that such prohibitions ultimately benefit large retail giants more than consumers or small businesses and would have mired Colorado in “years of legal uncertainty and operational chaos.”

While the desire to reduce operating costs for small businesses is always a valid goal, this veto likely prevented a cascade of unintended and expensive consequences. In our experience, seemingly simple legislative changes to highly complex, integrated systems like payment processing can create massive, unforeseen downstream costs for the very businesses they are meant to help. Merchants would have faced pressure to update their point-of-sale systems and software, a process that is rarely simple or cheap, and financial institutions would have passed the costs of re-engineering their networks along to customers in other ways.

This situation highlights a critical, often-overlooked area of business management: understanding and preparing for regulatory shifts. This isn't just about one fee; it's about the operational and financial turmoil that can result from well-intentioned but technically complicated legislation. Proactive planning for such events is a key component of sound business strategy. Navigating these kinds of regulatory battles and their potential impact on your bottom line is a core part of financial risk management. We help clients build strategies to mitigate these uncertainties. To learn more, contact C&S Finance Group LLC at csfinancegroup.com.

With the governor's veto, the current structure of interchange fees in Colorado remains intact for now. However, the issue is unlikely to disappear. Merchant groups have signaled their intent to continue fighting for fee reform at both the state and federal levels, ensuring that the battle over the cost of a simple card swipe will continue to continue.