Although it is does not have the population centers and metropolitan cities of other more prominent states, the rather rural and down-to-earth state of Vermont often leads the way when it comes to progressive legislation. The state has done again, by recently passing new laws that will make it easier for merchants that accept credit cards to give their customers discounts for not using those cards. That may seem rather contradictory or self-defeating, because retailers usually love for you to ring up sales – using a credit card or whatever form of payment you choose. But the idea behind this law is that merchants can now give customers who use cash or other ways of paying that cost the retailers and store owners less. They can also set minimum amounts for credit card purchases.
The reason is that when merchants accept plastic they are obligated to pay a significant fee to the credit card company. This has prompted the federal government to put caps on these so-called “swipe fees” that are charged to businesses each time they swipe a card. Vermont decided to go even further to protect its business owners from credit card fees by letting them have more control over whether they accept credit cards – and by offering consumers incentives to not pay with plastic but with methods that don’t cost the merchants extra.
Passage of the legislation came as a direct result of groups like the Vermont Retail Association and the Vermont Grocers Association urging politicians in Vermont. They argue that the legislative move is good for both consumers and retailers. The ones who are objecting to it are, naturally, the credit card companies and banks. The Governor of Vermont, James Douglas, also thinks it is a bad idea and he objected to the passage of the bill, saying that he understood the premise of the law but that he does not think this kind of credit card issue should be dealt with by state legislators.
“I understand and sympathize,” the Governor said, “with the frustration and concern of Vermont’s merchants regarding credit card fees, credit card rules and interchange fees imposed upon them without the opportunity to negotiate terms and the freedom to choose pricing options or the type of payment they will accept. I do not believe, however, that legislation of this nature is best handled at the state level. This is a national if not an international issue that is best addressed in a wider forum.”
He prefers to see it handled at a federal level, and for that reason he refused to sign the new Vermont law. But without his signature it still passed into law, however, in late May.
Not surprisingly, one of the biggest supporters of the law is the National Retail Federation (NRF), a professional organization that represents store owners all across the USA. This group also pushed hard for the federal government to put limits on swipe fees, and a senior executive with the NRF told reporters from The Washington Post “Vermont is the first state to begin to address this issue. There are provisions in the bill to protect merchants and to protect consumers. What Vermont has done is a first step.”
Under this new law, retailers in Vermont can set a credit card purchase limit at $10, so that to buy with plastic customers have to spend at least that much. Right now Visa and MasterCard prohibit merchants from setting any minimum requirements, but merchants have long complained that on small transactions the fees charged by card companies – the swipe fees – can wipe out all of their profits.
In Vermont card companies are also prohibited from stopping merchants from offering financial incentives to customers who use payments other than plastic – like discounts for paying with forms of payment including debit cards that typically cost the merchant less money. So even after factoring in a discount for this kind of buying, merchants can still preserve their profits better than they can if customers pay with credit cards that cost more expensive swipe fees.
Critics worry that this new law will discourage merchants from accepting credit cards – and they say that will therefore limit the options of Vermont consumers while potentially hurting tourism. They also say that it could cause credit card companies to reject the card applications of people who have Vermont addresses, because the card issuers know that they will make less money if those cards are used less frequently. But the major credit card companies deny that those kinds of things will happen, saying that they will continue to evaluate credit card applications and credit limits based on credit risk factors, not on the fact that someone lives in Vermont.
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