R Street Testimony in Opposition to Texas House Bill 4124: “Relating to the charging of swipe fees on certain electronic payment transactions; authorizing a civil penalty”
Testimony from:
Caroline Melear, Fellow in Finance, Insurance, and Trade, R Street Institute
In OPPOSITION to House Bill 4124: “Relating to the charging of swipe fees on certain electronic payment transactions; authorizing a civil penalty.”
April 14, 2025
The House Committee on Pensions, Investments, and Financial Services
Chairman and members of the committee,
My name is Caroline Melear. I am a fellow in Finance, Insurance, and Trade at the R Street Institute (RSI), which is a nonprofit, nonpartisan, public policy research organization. Our mission at RSI is to engage in policy research and outreach to promote free markets and limited, effective government in many areas, including promoting healthy financial markets. As such, we are keenly interested in House Bill 4124.
Since the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was enacted in 2010, there has been a concerted effort to place regulation on interchange and swipe fees for debit and credit card purchases. In fact, debit card interchange fees were forcibly lowered as part of Dodd-Frank in an attempt to provide economic relief to small businesses and, ultimately, consumers.[1]
However, four years after the mandates were placed on debit cards, the Federal Reserve Bank of Richmond released a study showing that none of the purported benefits of the legislation occurred. In reality, 22 percent of retailers raised prices for consumers and large and big box retailers retained the fee savings with little economic benefit shown to small and medium sized businesses.[2] Perhaps more importantly, the bill all but destroyed debit card rewards programs, slashed free checking account programs, and raised account fees for Americans, according to research from the International Center for Law and Economics (ICLE).[3]
The downstream effects show the realities of subverting the free market in favor of price controls, which frequently result in harms on those the regulations purport to help. When a business must forcibly reduce fees due to bureaucratic interference, the costs must be borne elsewhere. In the case of federal price controls on debit cards, those costs, both direct and indirect, fell on the consumer.
While it may seem as though the exclusion of banks under $85 billion in assets could remedy some of the loss-in-revenue issues, this presents two problems. First, this has not been demonstrated as being a successful strategy at the federal level, as shown from the ICLE’s research. Second, this ultimately reduces competition, as smaller banks struggle to compete with the mandated lower prices their multi-state competitors will be forced to change. Considering they already operate at a competitive disadvantage in other ways, further complicating this by disrupting functional market forces would be a net negative for smaller operators.
The bill in question—HB 4124—is unique as it would only slash swipe fees for the sales tax and tips portion of a purchase within the state of Texas. This mirrors similar legislation which was recently passed in Illinois, a heavily democratic legislature, and the first of its kind to pass in the United States.[4] Given ongoing litigation the legislation has not been formally put into effect, making its ultimate effects largely speculatory. But logical conclusions can be drawn from analysis of similar measures at the federal level, which clearly show that interchange fee caps do not help consumers or smaller merchants.
Further, a study from the Common Sense Institute of Arizona on the effects of proposed state level interchange fee caps in Colorado would lead to “economic decline and job losses.” According to their research, the savings that merchants may conceivably enjoy would be more than wiped out by the broader statewide economic losses of enacting price caps.[5]
Considering such legislation has not been fully implemented in any state, this would make Texas a guinea pig in an experiment of constraining the free market. Given all available research and evidence, it could be a case study in the harms of state level price controls.
Given all available research and evidence, the R Street Institute opposes House Bill 4124 as the negative effects are likely to far outweigh any perceived benefit for retailers and customers.
Caroline Melear
Fellow, Finance, Insurance, and Trade
R Street Institute
(404) 374-3248
cmelear@rstreet.org
[1] Board of Governors of the Federal Reserve System, “Regulation II: Debit Card Interchange Fees and Routing,” Federal Reserve, last updated June 23, 2023. https://www.federalreserve.gov/supervisionreg/regiicg.htm
[2] Economic Quarterly, “The Economic Impact of the Durbin Amendment on Merchants: A Survey Study,” Federal Reserve Bank of Richmond, third quarter 2014. https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/economic_quarterly/2014/q3/pdf/wang.pdf
[3] Todd J. Zywicki, Geoffrey A. Manne, Julian Morris, “Price Controls on Payment Card Interchange Fees: The U.S. Experience,” The International Center for Law and Economics, last revised January 14, 2020. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2446080
[4] Mitchell A. Newark, “Illinois Loses First Shot at Interchange Fees on State and Local Taxes,” National Law Review, January 23, 2025. https://natlawreview.com/article/illinois-loses-first-shot-interchange-fees-state-and-local-taxes
[5] Zachary Milne, “The Economic Impact of State Restrictions on Interchange Fees,” Common Sense Institute of Arizona, February 3, 2025. https://www.commonsenseinstituteus.org/arizona/research/taxes-and-fees/the-economic-impact-of-state-restrictions-on-interchange-fees