Bill > SB1940

This bill, effective November 1, 2026, aims to reduce the fees merchants pay on credit and debit card transactions by excluding state and local taxes and voluntary customer tips (gratuities) from the calculation of interchange fees, which are fees charged by payment card networks like Visa or Mastercard to compensate the card-issuing bank. Specifically, payment card networks are prohibited from charging interchange fees that are a percentage of the transaction amount if those fees don't exclude taxes and gratuities. Instead, these networks must either deduct the tax and gratuity amounts from the transaction total before calculating the fee or provide a rebate to the merchant for the portion of the fee attributable to taxes and gratuities. This provision applies to most transactions, but an exception exists for "exempted payment card issuers," defined as those with less than $50 billion in consolidated worldwide banking and nonbanking assets. The bill also clarifies that merchants have 180 days to provide documentation for taxes and gratuities if they couldn't capture them at the time of sale, and payment card networks must issue rebates within 30 days of receiving that documentation. Importantly, payment card networks are not liable for the accuracy of the tax or gratuity information provided by merchants, and they are prohibited from increasing other swipe fees (which include interchange and assessment fees) to compensate for the exclusion of taxes and gratuities. The Attorney General is authorized to create rules to implement these changes.