Vermont Legislature SmartTranscripts:

[Sen. Ann Cummings (Chair)]: We are live. This is Senate Finance. This is February 25. Committee,

[Sen. Scott Beck (Member)]: I'm

[Sen. Ann Cummings (Chair)]: sure you are all going to be terribly saddened to know that our last agenda item has been canceled due to illness.

[Sen. Ruth Hardy (Member)]: Oh. Sad. What? And

[Sen. Ann Cummings (Chair)]: I've been trying to run around and fill it, but at this late notice, all the staff is pretty uh-oh. We just saw that there is illness, but it seems to be endemic in this building. Yes. So we're gonna start out today, and Patrick is here from Joint Fiscal, and just trying to we keep hearing about the huge federal tax cuts that wealthy people got, and I thought we'd see if you could get a little granularity to that. It doesn't usually use it that across the board magnificent, but maybe it is. So Patrick's gonna break down and there. You can doesn't have a Can I ask for clarification, madam chair?

[Sen. Ruth Hardy (Member)]: So is the 02/15, all of that is postponed? Everything from that, that's that 02/15, is that what you meant?

[Sen. Ann Cummings (Chair)]: No, 03/15. 01/1961, the scholarship and granting organization. Oh, that got taken off. That got taken off. I see. We are still gonna do credit Okay. Card Wow. Okay.

[Patrick (Joint Fiscal Office analyst)]: Alright. Well, assume that the director fiscal office, and as the chair mentioned, and the request for today was to think about how, and look a little bit more into how the federal personal income tax changes were going to flow through into the Monarch's federal tax returns, and we can talk a little bit about what I mean about that in a few, but

[Rick (Office of Legislative Counsel)]: there is

[Patrick (Joint Fiscal Office analyst)]: there are these gray charts on the tax department's website, and they have them organized in a couple different ways, one of which is breaking things out into quantiles. So what you're looking at here is percentile distributions of different income categories. If you look at this returns tab, you can see that for each block of people that is about 10% wide, that references about 33,000 taxpayers. And you can see that, you know, for example, top 1% in Vermont as of the date of this data was about $586,000 in EGI. So I guess just looking a little further, if we kind of focus on that line there, of course, the bottom of the top 1%, that refers to about 3,300 tax returns in Vermont. They account for roughly 5,100,000,000.0 in adjusted gross income, which represents about 17% of total adjusted gross income in the state. Further, that sort of ends up translating to about $345,000,000 in personal income taxes, which accounts for about 30% Vermont's collections from that group. And if you widen that to be the top 5%, so that's the nine 95 to 99, the top one columns, their income is contributing about 52% of total personal income tax collections to the state on state returns. So I'll just pause here for a moment. This is sort of what the general income distribution across the state looks like, broken into percentiles. When you think about, I think the top 1% is often referenced group. What that means in Vermont is that you need an adjusted gross income about 586,000.

[Sen. Ann Cummings (Chair)]: At the bottom, 30%, pay Thank you. I will I see the minus, so I assume they get tax credits back.

[Patrick (Joint Fiscal Office analyst)]: Yep. That would mostly be due to refundable credits. Okay. Yeah.

[Sen. Ann Cummings (Chair)]: And in a state with a flat tax like Massachusetts, all of those taxpayers would be paying five is it whatever their tax rate is.

[Patrick (Joint Fiscal Office analyst)]: 4%, I think, if that's the whole and then an additional Oh,

[Sen. Ann Cummings (Chair)]: I think five and yeah, so they would that bottom 30% would pay more under a block tax system.

[Patrick (Joint Fiscal Office analyst)]: In the absence of credit, offsetting credits. Right? Yeah. Okay.

[Sen. Ann Cummings (Chair)]: Okay, questions? First, I'll say thank you for pausing. I'm

[Patrick (Joint Fiscal Office analyst)]: gonna pause on every slide.

[Sen. Ann Cummings (Chair)]: I love to pause. Yeah, it's helpful. So this is state tax, not federal tax, and this is 2024. Or is there no 2025 yet?

[Patrick (Joint Fiscal Office analyst)]: Well, people are filing their 2025 taxes right now.

[Sen. Ann Cummings (Chair)]: Right. Right. Right. I answered that by some point. Are you predicting any major changes?

[Rick (Office of Legislative Counsel)]: Well, I mean, if you

[Patrick (Joint Fiscal Office analyst)]: look at how this has changed over time, you know, actually, this is a good segue to the next slide. Because the one thing that I looked at, and this is 2022, that's the latest the IRS had published on their website. So working there, same year, same year. And one thing that kind of jumps out at me is around the median, that fiftieth percentile, Vermont pretty close to what it looks like nationally, about $50,000 both in Vermont and nationally for AGI is kind of around the median point. Where there is a more significant difference between what it means to be in this income group, that's at the 1%. So in 2022, if you were a Vermonter in Vermont, you would have been in the top one percentile if you had about $520,000 in AGI. If you could look at that nationally, that number is more like six sixty three. Since 2022, all those thresholds have gone up, right? So, but I think one thing it does show you or suggest maybe is that Vermont's differentiation as you go up the percentile is not quite as steep of a climb as it is nationally. Just maybe potentially indicating, I'm not saying this affirmatively, but potentially indicating that there could be a little bit less of a gap between that top 1% and what you might think of at the median

[Sen. Ann Cummings (Chair)]: level. Wait, I

[Sen. Scott Beck (Member)]: don't think think I elaborate on that. So are you saying that Vermont's income, that we're a little more progressive than the federal rate schedule or less progressive?

[Patrick (Joint Fiscal Office analyst)]: We are, so I'm purely talking about what the income requires to fall into. Yeah. With a certain bucket. So this is sort of thinking about it pre thinking about anything to do with taxes. Okay. Yeah, this is just what income you need to be considered Yeah, this is a pre tax AGI.

[Sen. Ruth Hardy (Member)]: To be in those tiers,

[Sen. Ann Cummings (Chair)]: the Yes,

[Unidentified Committee Member]: in this book, yes.

[Sen. Ruth Hardy (Member)]: So this isn't layering on the tax rate for those tiers yet.

[Patrick (Joint Fiscal Office analyst)]: Yeah, so they're a little different than what we saw here. It's essentially just comparing one column here with that same column, what it looks like on a national average. Okay.

[Sen. Ann Cummings (Chair)]: Yeah. Yeah. Our top 1% is not our top tax collection.

[Patrick (Joint Fiscal Office analyst)]: No. Yeah. And I guess another way of putting it is Vermont's top 1% is lower than the national dollar percent in terms of what income you need to be defined as being a macro.

[Sen. Ann Cummings (Chair)]: So our pay economy is not quite as pay as some pay economies. Our pay is smaller.

[Sen. Ruth Hardy (Member)]: It's a lower base. It's a lower case pay.

[Sen. Ann Cummings (Chair)]: I'm not sure

[Patrick (Joint Fiscal Office analyst)]: I know what that can

[Sen. Ann Cummings (Chair)]: come on.

[Unidentified Committee Member]: So Is it

[Sen. Ruth Hardy (Member)]: stability or a it's trend in the building That we're

[Sen. Ann Cummings (Chair)]: talking about. Your certain income, your buying power essentially is going up. You're not doing well. Like, if you are in another income bracket, your buying power is going up.

[Sen. Ruth Hardy (Member)]: The bulbs are another, it's sort of like the alligator thing.

[Patrick (Joint Fiscal Office analyst)]: Yeah, I was gonna say this sounds like the alligator.

[Sen. Ann Cummings (Chair)]: Everybody's not going up and everything's not going down. Some people are doing better and some people are doing worse. But I don't know if that's gone beyond the web. So do you

[Sen. Ruth Hardy (Member)]: layer on the tax rates to that?

[Patrick (Joint Fiscal Office analyst)]: Well, a couple of slides, we'll have sort of a crosswalk, what I want to highlight here is what we have available to do some of the analysis is the federal estimates of federal changes in tax liability. So what I'm trying to attempt to do here is tell you, in a sec, we're gonna try to convert Vermont returns into the buckets that define the federal quantiles. Okay. And so, and I think it's in a couple slides, you'll sort of see, based on the JCT analysis of HR1, what Joint Committee on Taxation, I think, what their federal estimates look like if we crosswalk Vermont returns into their fontiles. Okay. Okay. Yes.

[Sen. Ruth Hardy (Member)]: Crossing. I'm clear when we finish, actually.

[Patrick (Joint Fiscal Office analyst)]: So, next, I just wanted to highlight several of the provisions that are quite large in the bill and draw a little bit of a distinction in terms of the types of provisions. So, the first set are those provisions from TCJA that were set to expire, but HR one made permanent.

[Sen. Ann Cummings (Chair)]: Okay.

[Patrick (Joint Fiscal Office analyst)]: So if you were to compare what's tax year '26 to tax year '25, the provisions are gonna look pretty similar, because it's not actually changing people's experience from the prior year, but it's still being booked in as a cost a impact on revenue. So that's where the extension of the reduced income tax rates, the extension and increasing the standard deduction, termination of permanent personal exemptions, I should say, and a couple of and a few other things. I don't know what that was. That should be that should say personal exemptions. Okay. So those are actually all areas, if you remember back when TCJA was passed, that we've not Decoupled Fund, and sort of send a statute in Vermont for our tax code, our own standard deduction and exemptions as a way of muting sort of the bilateral effects that some of these law changes were having.

[Sen. Ann Cummings (Chair)]: So with those, because they're an extension, the folks with the reduced income tax are not going to experience an increase in revenue because it's not changing and the people at the bottom are not going to experience an increase in revenue because those tax cuts or the tax credits are not changing.

[Patrick (Joint Fiscal Office analyst)]: Yeah, the cost estimates I've seen associated with these, they're accounting for know, what would have happened if these had been allowed to expire. Mhmm. So on a year to year basis, it's it's been a little bit the same going from permanent or from temporary to permanent. But, you know, from an accounting perspective, that does reflect a loss of revenue because the prior law was set to expire.

[Sen. Ann Cummings (Chair)]: Yes.

[Patrick (Joint Fiscal Office analyst)]: And it's an important thing just to keep in mind when looking at all these numbers is that from a year to year experience basis for the taxpayer, it might not look all that much different from the year prior, specifically to the TCJA provisions that were temporary and are being made permanent. There are some other areas where there are expansions.

[Sen. Ann Cummings (Chair)]: Yeah. That's what I was gonna say,

[Sen. Ruth Hardy (Member)]: because there are other things that so went on top of the TCJA.

[Patrick (Joint Fiscal Office analyst)]: In that second major bullet, those are all provisions in HR1 that are new and represent change from prior year tax treatment. So that's where you have your qualified tips, the overtime deduction, car loan interest, the senior enhanced standard deduction, some other expansions of credits that were not tied or related to anything in TCJA that was temporary or what have you.

[Sen. Ann Cummings (Chair)]: Those are eligible for across taxpayer categories? Yes. Yeah.

[Patrick (Joint Fiscal Office analyst)]: And I guess one other thing I will say, going back to the provisions from TCJA, so I have shown the child tax credit listed there. So they did make that permanent, but they also enhanced it in a way that it's more generous than some refundability conditions. So while it was something set to sort of sunset, it is something that was also expandable. So there's some nuance all over the place.

[Sen. Ann Cummings (Chair)]: Because we have a tax no, our child tax credit is not

[Patrick (Joint Fiscal Office analyst)]: We have our own structure, if

[Sen. Ann Cummings (Chair)]: would Yeah, not tied to that one. Some of them they are tied to, but not that one, aren't they?

[Patrick (Joint Fiscal Office analyst)]: Yeah, some examples would be the child independent care credit, which you see here as an expansion. Earned income tax credit is another one where we just use a flat percentage of what you're eligible for on your Vermont, or your federal return. Yep. Okay.

[Sen. Ann Cummings (Chair)]: What about what we were supposed to be looking at today, but now we're not looking at, which is that it is a tax credit. Is it up there?

[Sen. Scott Beck (Member)]: S-one 161, I which

[Sen. Ann Cummings (Chair)]: think we have the tuition.

[Patrick (Joint Fiscal Office analyst)]: Oh, that. Sorry. I meant that as in, oh yeah, don't show you Oh. That wouldn't be as major a provision compared to anything else you see on this screen in terms of overall impacts to federal returns, right? Because that's a federal tax credit that's not gonna show up on your Vermont returns. Ultimately, that will end up being something we don't have a lot of visibility on in terms of Vermonters receiving it. Okay. I have one more slide before I show you the crosswalk. I just wanted to, like, you know, we talked about this, we're taking Vermont returns, putting them into the federal quantiles. I just want to reiterate that the underlying estimates that were done were done by JCT. I shaved them a little bit to make them sort of, I keep using the worst crosswalk, but make them more LeMont specific. And then, yeah, just again, HR one does make permanent and temporary, formerly temporary provisions, and just keep that in mind when thinking about the scale of the numbers, because when we do go to the crosswalk and you come right down here, it's almost a billion dollars that is, know, through this methodology being suggested for volunteers of our savings on their income tax, federal income tax with governments.

[Unidentified Committee Member]: Wow. In what year?

[Unidentified Committee Member]: April? I believe so.

[Sen. Ann Cummings (Chair)]: What happened to the ninetieth to the ninety fifth percentile? They're kind of a whole.

[Patrick (Joint Fiscal Office analyst)]: Well, it is going from, so we have quintiles that transition into the decile, and then that's, like it's a step of 20, step of 20, a step of 20, a step of 10, and then so, that's why the returns for those smaller percentiles shrinks up.

[Unidentified Committee Member]: And

[Patrick (Joint Fiscal Office analyst)]: actually, so if you remember, iTeP was in here, Davis, you took Desmilia. The this is the same a similar this column on the JCT estimated average returns. That that particular column is the same thing that he was doing.

[Sen. Ruth Hardy (Member)]: I know since the 1%. Right, so the top three are actually five, make up 5%.

[Patrick (Joint Fiscal Office analyst)]: Yeah, you can see here that as you go up the income spectrum, the average size of those tax reductions does increase.

[Sen. Thomas Chittenden (Vice Chair)]: My quick math 70% of the tax benefit went to the top 20% of people.

[Sen. Ruth Hardy (Member)]: Is that right?

[Sen. Ann Cummings (Chair)]: Yeah,

[Sen. Scott Beck (Member)]: we'll get the top 20% to 80% of all the income statuses too. So kind of

[Patrick (Joint Fiscal Office analyst)]: like that. Yeah, we think back to the very first slide we looked at, it was the top 55%, I think we said, were contributing about 52% of Vermont income tax receipts.

[Sen. Ann Cummings (Chair)]: But is this sorry. Still processing.

[Unidentified Committee Member]: Happy to pause.

[Patrick (Joint Fiscal Office analyst)]: This is the last content slide. So if there's anything you wanted to revisit in previous ones.

[Sen. Scott Beck (Member)]: Of those Yeah. Of those three twenty four, the highest point one, I think above 2,000,000. Those are gotta be just mostly asset sales. Right?

[Patrick (Joint Fiscal Office analyst)]: Yeah. I mean, oftentimes, we do see that and it's not all the time, there are some persistently hiring of individuals. Yeah. But there are one time events for a lot of people that will, you know, like sale of a business, sale of

[Unidentified Committee Member]: a home that you've had owned for a

[Patrick (Joint Fiscal Office analyst)]: long time, that can cause temporary sort of spikes in lifetime sort of income?

[Sen. Ann Cummings (Chair)]: Doesn't take much. Can think of at least one form that would never catch your attention in Ron Pillard that's all for over $1,000,000 last year.

[Sen. Scott Beck (Member)]: Although too many people that actually $2,000,000 of w two in government. The regular things. It's a lot of things.

[Sen. Ann Cummings (Chair)]: Who knows? And we are gonna go after some of the stocks and some of the unearned income.

[Unidentified Committee Member]: One would sort

[Sen. Thomas Chittenden (Vice Chair)]: back point. If you go back to your slide three, so it is worth crystallizing that right now by my math, 78% of the income tax is coming from the top 20%

[Sen. Scott Beck (Member)]: of the people too. So we're

[Sen. Thomas Chittenden (Vice Chair)]: giving discounts where the monies are coming in.

[Unidentified Committee Member]: Yeah. Good point.

[Sen. Ruth Hardy (Member)]: But those are also the people that make all the money. So No. I know.

[Sen. Scott Beck (Member)]: The people that make most of the money pay most of the income tax.

[Sen. Ann Cummings (Chair)]: And I it would be interesting to see if any of these arts keep I'll bet you the hospitals do. But I remember the decisions that are on charitable deductions, those are also the people that endowed scholarships and university chairs and wings on the hospital that don't show up there. We had a McClure Foundation, the people that still remained on Friday, and I'm sure they were in that bracket. The Tarrant Foundation did a lot of good in the state, so there's other places that that money goes that it might not go if we take it, but we don't know that.

[Sen. Ruth Hardy (Member)]: Okay. Can I ask the question? Yeah. Do you have this as a percentage of their income, you know, to I mean, you can look at it as the people who make the most pay the most. Yeah. But when you look at it from the percentage of their income, are they paying?

[Patrick (Joint Fiscal Office analyst)]: Oh, like a like a effective tax rate?

[Sen. Ruth Hardy (Member)]: Yeah. Yeah.

[Rick (Office of Legislative Counsel)]: So the I

[Patrick (Joint Fiscal Office analyst)]: truncated the chart that the tax department has just to get it to fit, but I can absolutely send you that. And so the far right column will show you the effective tax rate essentially if you divide their taxes by their income. What does that actually show you?

[Sen. Ruth Hardy (Member)]: Yeah. And then if you combine the state and federal tax payments, what is the percentage too? Because both just what is it when you do federal, what is it when you do state, and then what is it when you do combined? Because The overall tax payment to government. Yeah. And, I mean, I actually also, I mean, I think I've made this point in here too. This is just looking at income tax, which for Vermont, our income tax rate structure is is very progressive. But then when you add on, you know, sales tax and property taxes and other taxes, which are especially sales tax, more regressive, you know, and more paid by lower income people than what is the effective tax rate. And I think that's a more complicated analysis, but there must be something that's done that kind of thing.

[Sen. Scott Beck (Member)]: I that's all that. Exactly. Yeah. Who

[Sen. Ruth Hardy (Member)]: pays Is that ITAP? Who gets that? Yeah.

[Patrick (Joint Fiscal Office analyst)]: They they publish that.

[Sen. Scott Beck (Member)]: See it by state. It's really good. Yeah.

[Sen. Ruth Hardy (Member)]: Yeah. That's where I think that

[Patrick (Joint Fiscal Office analyst)]: One caveat with that report is I do think that these are not included, and I do think that it excludes 65 in January.

[Sen. Ruth Hardy (Member)]: Okay. Is that on our website still? Was that was that?

[Patrick (Joint Fiscal Office analyst)]: Let's see. I can send

[Rick (Office of Legislative Counsel)]: it to

[Sen. Ruth Hardy (Member)]: Can you send

[Sen. Ann Cummings (Chair)]: it to me? Okay. I'll send it to all of us. Yeah.

[Patrick (Joint Fiscal Office analyst)]: I'll send his child.

[Sen. Scott Beck (Member)]: Just good. But to your to your point Yeah. The Trump tariffs tariffs were taxes, and they

[Sen. Thomas Chittenden (Vice Chair)]: were quite progressive, and those are falling much more on lowering it. Exactly. Fortunately to their income. So I I feel like looking at the income tax and overlaying it also with who's paying

[Sen. Scott Beck (Member)]: who's been paying those Trump tariff taxes

[Sen. Ruth Hardy (Member)]: Yeah.

[Sen. Thomas Chittenden (Vice Chair)]: That would also be a relative

[Sen. Ann Cummings (Chair)]: know, we can I think we can fairly well documented that Rwanda is a small state and our tax burden is high? Our quality of life is also high. We get recommended as a great place to retire, I guess if you've had money, because other ones will say other than if we're expensive, we're a great place to retire. I we can we can look at all of this, but we can get so far into the weeds that we'll never get out in a week.

[Sen. Ruth Hardy (Member)]: I guess the point I'm trying to make is that the you know, the the the wealthy people who are the people who have the money may be paying more on a dollar amount. Right. But when you look at it as a percentage of their income, they're paying probably far less. And that and that when you look at the full tax picture And they are they are benefiting from the services that we provide as, you know, public public services, and

[Sen. Ann Cummings (Chair)]: and can afford to pay more than than people with lower incomes. Afford to pay is sometimes a personal judgment like what is fair. We are going after a set of wealthy people who do not pay taxes in Vermont and that is the second home loan. So that should be put in this equation also. They are enjoying the services and the environment and the sometimes paved roads.

[Sen. Ruth Hardy (Member)]: Right. They're not all there are plenty of Vermonters that Oh, have they are not to buy. But

[Sen. Ann Cummings (Chair)]: they will pay based on the value of the system. Okay. It will take a while to go through this and then adjust this because we're into percentiles and I'm used to thinking in terms of brackets.

[Unidentified Committee Member]: I do.

[Sen. Ann Cummings (Chair)]: I'd like to raise or put I guess a top bracket in or raise the bracket and help those I guess that the 90 to the ninety fifth percentile holds but the salaries that pick up, this is filing jointly, so two, not for my end professionals, but two professionals are not

[Patrick (Joint Fiscal Office analyst)]: These quantiles, will say this is everybody, it's not broken out by a violent status. Okay. Yeah.

[Sen. Ann Cummings (Chair)]: Okay, because our brackets are, which is what I've addressed. I

[Sen. Thomas Chittenden (Vice Chair)]: know you've said this before, but it takes a while for it to sink in for me. Can you explain to me how our current income brackets are defined? Do we set those as it's tracked with the federal government? Where are thresholds and how often have this been calibrated over time? Oh,

[Patrick (Joint Fiscal Office analyst)]: I never remember the exact dollars off the top of my head, but

[Sen. Ann Cummings (Chair)]: It varies with inflation, that stuff.

[Unidentified Committee Member]: Varies with inflation, okay.

[Patrick (Joint Fiscal Office analyst)]: Yes. Yeah, so Vermont has its own standalone tax brackets. We're not tied to the federal structure in any way with that. So we have our own, and each year, yes, the levels of the brackets do increase. I think it's in statute, tax reform has to use CBIU to increase each of those brackets. So you can kind of see naturally as incomes are rated right at same time, it's increasing all the brackets over time to sort of keep people in the same context of the bracket they are from a starting point to an end point as incomes are generally increasing over time.

[Sen. Thomas Chittenden (Vice Chair)]: So I'm very interested to know when we set up that formula base amount to the CPI because we are in a new tax landscape with the big mutable bill with HR1. Understanding what those were set at when, how long ago, and looking at what would track with what our intent as a state has been, what they should be today is something I'm interested

[Sen. Ann Cummings (Chair)]: in.

[Sen. Scott Beck (Member)]: Does that make sense to

[Sen. Ann Cummings (Chair)]: And it was Michael Costa from Gifford Hospital, and Randy was here. We set up a Blue River Tax Commission. We had five tax brackets, and it was, what, February, the early part of the 2000s?

[Sen. Randy Brock (Member)]: Yeah, was 2008 or '9, something

[Sen. Ann Cummings (Chair)]: like And the concern was all the national people took that top tax bracket rate and rated us unfriendly to business because we had that high bracket. And the commission's job was to bring us into a more competitive tax thing.

[Sen. Randy Brock (Member)]: I think probably the rationale was that as a result, regardless of how you put it down, you wind up penalizing the most wealthy person who is typically also the person who pays the most taxes. And there comes a point at which they are more mobile than those who are at lower or median tax brackets and don't have to stay here more than

[Sen. Ann Cummings (Chair)]: six

[Sen. Randy Brock (Member)]: months and one day.

[Sen. Ann Cummings (Chair)]: And they also came in with recommendations on deductions, which the Tax Caught and Jobs Bill kind of fixed because other states like Massachusetts, you could take one deduction, you could take no deductions, you could take a certain percent deduction. There were many different but itemized deductions at least in the surrounding New England states, and I'm remembering, and this was twenty years ago, were not as complicated as ours in court, as liberal as ours. We collapsed those top two brackets, and I think we set the race then. A lot of work was being done at that point trying to when we set the brackets, trying to find a way to lower the brackets in the middle class. It's like if you tax the rich with property taxes, there was this awful effect and couldn't find a way to do that without hitting the middle income. It kind of stayed that way until the Tax Cut and Jobs Act. And with that one, the state benefited 30,000,000, so we rewrote deductions. We we we had already, the year before, decoupled down to adjusted gross income, I think. But we we did a whole lot of reworking then, which would have been '17, I think, 2017. But we we didn't really play with the tax bracket, so they've been with the four. I think my concern is that as inflation and other things have gone on, that we may be, we are having an awful time recruiting doctors, especially primary care doctors, people who would fall into that lower level of the top tax bracket, and New Hampshire is next door. And so I'd like to see if we can't we bump maybe put the pit bracket back in and do that and look at Massachusetts as a quarter of percent above us, see what that might do in the way of income without it being a huge shock. It'd a fair amount of money. That's tough. Okay.

[Unidentified Committee Member]: That's super personal. Yeah. I'm just Have

[Sen. Christopher Mattos (Clerk)]: you raised the income tax rate? Yep.

[Sen. Ann Cummings (Chair)]: The top rate, we're always being prepared in Massachusetts. Massachusetts is a quarter of a percent above us, but if you remember the tax department last week said if you make $10,000,000 you actually over one year because you're paying on every material and everything over 300,000. Which You're effective. You're effective, ma'am. The actual cash you pay in is more than you pay in in Massachusetts because they're only paying it on the billion up. Right.

[Patrick (Joint Fiscal Office analyst)]: Certainly Okay, be happy to come back in the

[Sen. Ann Cummings (Chair)]: that would be good. And that's it? Yeah. Okay. Perfect timing. The room's changing. Once you have a seat, seat's for you. And we don't have an enforcement I do it if you want me to. No. I don't want you to. I'm just having people sit in the windowsill behind me. Oh, wow. That was. That's very great. I'm gonna go get some water. Okay.

[Unidentified Committee Member]: It doesn't.

[Sen. Ruth Hardy (Member)]: We're gonna Yeah. It's more comprehensive than I

[Unidentified Committee Member]: Yeah.

[Sen. Ann Cummings (Chair)]: Yeah.

[Unidentified Committee Member]: What we can do is put it again.

[Sen. Ann Cummings (Chair)]: What'd So we're gonna be looking at $1.35, which is actually a holdover from last year. And Rick is here. Now this is credit card fees on the amount of transactions that is taxed at gratuity and required retailers to accept cash for all transactions under $500 We took testimony on this last year. We learned that the swiping fee was was in court and decided no sense doing anything until the court case has settled. I've heard by way of humor in the hall that the court case was settled, but I think they're making further action since then, so we're gonna just find out where we are and what people think. Rick, the floor For is

[Rick (Office of Legislative Counsel)]: example, with the Office of counsel, is any court case really ever settled, madam chair? Pardon me? Is any any court case ever really settled?

[Sen. Christopher Mattos (Clerk)]: That's the

[Sen. Ann Cummings (Chair)]: Probably not in this country. We're very litigious with money.

[Rick (Office of Legislative Counsel)]: You appeal you appeal the appeal. So I guess my first question is, do you want a walkthrough of the bill first? Do you want like an overview Let's of the

[Sen. Ann Cummings (Chair)]: do a real 2,000 foot walkthrough because it's been a year or since we bought the bill.

[Rick (Office of Legislative Counsel)]: Yeah. And I'm happy to share my screen. I'm joining the Zoom. So it is S-one35, and the main there are two parts of the bill. The the the main part that I think the well, that the court case did speak to is the Section one, the major part of S-one 135. Section two, as the chair mentioned, is a small section about cashless prohibitions, which we'll just take a second to get to. But we'll start with the bill in order, and it does start with the credit card fees on tax duty. So, again, kind of an overview of what this bill is when a consumer goes to a store and pays for their goods and services with a credit card, there's a I can't begin to explain how complicated that transaction is for us. You just swipe it and you're done. Or now you tap it and you're done. It takes a matter of seconds, but a lot happens during that transaction. A lot of networks are contacted. Make sure you have it in line with so forth. So what this bill would do is regulate a part of that transaction to where when you pay with credit card, you let's say it's 3% that the that the issuer charges or the network charges you, charge the merchant for the transaction. It charges the merchant, not Correct. Well, yes. And sometimes the merchant charges the consumer.

[Sen. Ann Cummings (Chair)]: It's Yeah. Sometimes it's figured in the cost of whatever I'm talking about.

[Rick (Office of Legislative Counsel)]: Certainly. So, for argument's sake, that 3% applies to the whole transaction. Let's say you've $100 they would be a $3 fee, right, to that $100 transaction. What this bill would do is slice out any taxes, sales taxes, for example, or gratuities on that bill. So if the bill was a $100, and that included, let's say, $5 in taxes, that's really low. Whatever the amount would be in tax and gratuities, let's say the total is $300 again, that amount would be different because the 3% would not apply to that sliver of the amount that is taxed in the trees, whatever that happens to be. Dollars $5.10, whatever that amount is, would not be part of. Sales tax would be $6 on a 100, so. Yes, I'm not good at math. Yeah.

[Unidentified Committee Member]: Yeah, what's that?

[Sen. Randy Brock (Member)]: I'm not feed a 3%. Are you? 3%.

[Steve Rauschenberger (Electronic Payments Coalition)]: 6%.

[Rick (Office of Legislative Counsel)]: JFO just left. Oh boy, that

[Sen. Randy Brock (Member)]: would be great to answer the question. He thinks that.

[Sen. Thomas Chittenden (Vice Chair)]: You might not be the right person

[Sen. Scott Beck (Member)]: to ask, but I want to

[Sen. Thomas Chittenden (Vice Chair)]: just put this on the table as well. I think it's one of the big hindrances for this moving forward is there's a big difference. When you said the transaction, lots of things happen. Yeah. I it's important just to make sure we're all clear that the itemized receipt, whether you buy at, say, Costco, all the 10 or 15 or 20 things you buy or if it's out of place with a tip, those items, those individual line items, are not sent to the credit card companies. The credit card company does not know that you bought this much in produce, you bought this that had a sales tax, that that had a meals and prep tax. They just know the total amount. Like credit card companies, when I look at my credit card statement, I see the total charge, not the itemized, the granular items. And so in my understanding for this to work, we would we would be mandating that credit card companies start to collect item level transactions or forcing all of the systems out there, the point of sale system to clearly separate out taxes, tips, and other items. And then the credit card companies would have to disassociate those amounts. So I'm just curious since no other state's done this, Illinois is trying, they're in courts right now, does Vermont have the right? Do we have the ability to dictate interstate commerce or would this only apply to Vermont banks? Can we really tell international credit companies that they got to change their systems to start tracking these differing item level amounts on our cards?

[Rick (Office of Legislative Counsel)]: That is a lot of questions, senator. Yeah. And I can answer part of it, but not most of it. So the technical aspects, I can't speak to the the data limitation you're kind of referencing. That appears to be a question, but I also kind of answer as far as what credit cards we need to know about a certain receipt. In this bill, the merchant would have to inform during that transaction what part of that transaction is gratuity or taxes. Presumably, the point of sale system would handle that in some kind of way. Again, not my expertise, but you're right that, there are some concerns and the court brought up those concerns in some aspects. It did not talk about interstate commerce, this decision, cause actually it wasn't argued as violating interstate commerce. So I think that would be something that a court, another court may look at at some point.

[Unidentified Committee Member]: Okay. But

[Sen. Ann Cummings (Chair)]: the credit card company is charging me for the privilege, the convenience of not having to pay cash. I just have to carry my credit card, and I don't have to carry cash upstairs to the lunchroom every day. And but when I check out my lunch, the rooms and meals tax is included. I am charging I am if I just said I'm gonna pay you the whatever dollar for the meals tax and I'm gonna charge five of my $6 bill, then I'd only do it. I'm I'm not being charged for I'm being charged for the service, not for what it is. I'm, You know, you use your credit card, you use the service of the card, not

[Sen. Scott Beck (Member)]: The food service. The food service.

[Sen. Ann Cummings (Chair)]: Yeah. Food service pays, but they're gonna yeah. They pay. But the theory is I go there because they will accept my credit card. They don't have to accept credit cards. They are probably if I had to steal out the cash every day, I might not pick up that wonderful looking pastry that's sitting up there or the bag of potato chips because I've only got $5 and I can't buy that today. I might decide I'd get a glass of water out of the fountain. So this there's a balance here. No one has to to use credit cards. Only if they

[Sen. Ruth Hardy (Member)]: want sales. Well, I think a couple of things. There are actually more and more places that don't accept cash anymore. So, I mean, that started during the pandemic. It was just sort of especially now with the penny issue. And if I recalling from the testimony we we heard last year, the interchange fee, which is the fee that we're saying, if the bill is saying, wouldn't be charged, Is is a fee that's for the sort of electronic payment transaction. It's not a fee to the credit card company. It's for the the system. Else? Yeah. It's for the sort of the middle hate I hate that term. AI? The middle AI. Middle person. The middle person. To us, because you're learning that all here. But and I think the point is is that, okay, you're you're buying a a service or an item, a good or a service, goods and services. Yeah. But the the part that the bill would not wanna pay charge that fee for is the tax, which the vendor is not charging, literally, we're charging the tax, and the the gratuity, which is what you sort of pay to thank somebody for their service. So it's it's it's taking out the portion that is paid that is not Right. For the goods or the services and saying that that is is shouldn't be charged this interchange.

[Sen. Ann Cummings (Chair)]: And I guess that's what's being argued is it is part of what's if I wanna pay cash for that, then it wouldn't go through, and

[Sen. Ruth Hardy (Member)]: it wouldn't get charged. Right. But I don't think I mean, you could pay cash for tips in a restaurant, for example, but you couldn't just say, I'm gonna pay, you know, for my $20 dinner, but or lunch, breakfast, whatever you can get with $20 nowadays,

[Sen. Randy Brock (Member)]: but I'm not

[Sen. Ruth Hardy (Member)]: gonna pay the tax with it. Like, that would be hard to Yeah. Say I'm just gonna pay the the tax and the step with cash. So and I think that, you know, the part of this is to help small businesses not have to pay this interchange fee as much, especially small restaurants Yeah. Which we have a lot of in France. And

[Sen. Ann Cummings (Chair)]: I think we've tried several times, have run into issues to do something about credit card fees. Done a few things like allow people to set a minimum purchase because if you buy a pack of gum, the fee is more than Yeah. The So let's let Rick finish. I'll be quiet. And the idea was what is happening now?

[Rick (Office of Legislative Counsel)]: As far as the core cases or as far as the

[Sen. Ann Cummings (Chair)]: rest Just of the walk us through really quickly. We'll all be quiet. If

[Rick (Office of Legislative Counsel)]: there's a question, obviously, but I'll skip the definitions, although I think you should review those, and you'll hear from witnesses as far as if they're affected and how they're affected by this by this billboard pass. But on page two, three of the bill, there are actual requirements in the bill. So with the transaction involving a merchant, no issuer, payment card network, a buyer, bank, or processor shall charge or collect from a merchant an interchange fee on the amount of the transaction A merchant shall transmit the amount to the acquirer bank, payment card network issuer, any designated foregoing as part of this transaction. If one of those entities does not receive from the merchant that amount, then you can charge them the full amount for the entire transaction. That's subdivision B. A merchant does not transmit that amount, that is taxing gratuity, as part of the transaction, may submit tax documentation showing the taxing gratuity amount, not within one hundred and eighty days, so you have roughly six months for merchant at the transaction where you are charged the full amount for the full transaction. You have one hundred and eighty days to submit documentation to the entity that collects the fee to get money back, which is interesting An in a acquirer of the payment card network issuer or any designee that receives this tax documentation not later than thirty days after receiving it shall credit the merchant for the amount that was previously collected. A merchant that submits an amount that is inaccurate should submit with a corrected amount thirty days after the notice that it was inaccurate. The entity corrected amount is greater than what was reported by the merchant. The acquirer bank, payment card network issue or or designee shall credit the merchant the difference between the two. It is less than what was reported by the merchant. The merchant shall credit the bank, network, issuer, or designee between the difference of the two amounts. Make sense so far? Most of this last part was about the merger and submitting some information later before submitting an incorrect amount to the I think it was a discussion

[Sen. Ann Cummings (Chair)]: as the terminals don't always

[Rick (Office of Legislative Counsel)]: This is a new thing. This this is this Illinois, we talk about, does not have their situation set up here. So this is going to be a situation if you would pursue this. Four, it shall be unlawful for an issuer or payment card network acquired bank or process to alter or manipulate an interchange fee of a transaction in an effort to circumvent the index of the section. The penalty section, any issuer, card network acquired bank or processor found to have violated the section shall be liable for a civil penalty of $1,000 per transaction. Any merchant whose rights have been violated may maintain a civil action for damages or equitable relief as provided in the section, including attorney's fees. This violation would bring in the Vermont Consumer Protection Act, which allows the Attorney General to conduct some investigations, bring civil actions, etcetera, under the Vermont Consumer Protection Act. So that's the interchange section. This last section on page six is totally different. It is requiring that a seller or lessor who offers goods or services to consumers shall not refuse to accept cash as a method of payment unless the transaction exceeds $500, and a person who violates this requirement would also violate the MOP and Single Protection Act.

[Sen. Thomas Chittenden (Vice Chair)]: Maybe not for Rick, but just another touch point that whoever's gonna speak next of, like, the rates. What I recall of this conversation last year is that recall that this would only apply to Vermont based banks that would be forced to do this and that it wouldn't apply to any banks out of state. That's not correct, but I I just would love to know what the scope of our influence over these interchange fees are, because I think that is an important relevant discussion, especially since no other state has successfully done this.

[Sen. Ann Cummings (Chair)]: Banks can be chartered for their with the state or with the federal government.

[Sen. Thomas Chittenden (Vice Chair)]: I'm not talking Visa or Mastercard, but the the second the third party. So Visa and Mastercard facilitates it, but if the backing your bank is like your local bank. Those are the people that they're based in Vermont that would have to conform to this new reporting structure. My understanding, but I'd

[Sen. Scott Beck (Member)]: love to validate that if anybody wants to. The

[Rick (Office of Legislative Counsel)]: court yeah. I think let's so let's maybe transition to the court case because that is a grossing the court case. Okay. That was released two weeks ago. Very, very recent. February 10. So let me first preface this case. The court in Illinois. This is not in our circuit court. We're in the second court of appeals. So even if this decision were to be appealed, which I'm sure it's going to be appealed, and if the appeal were to be different than this decision, it would not directly affect Vermont. Certainly, it's persuasive to a court that may say, okay. This is what and even this decision is somewhat persuasive to Vermont. But, again, it's one judge, something that you keep in mind. However, it the law in Illinois is not identical, but it is very similar to s one thirty five. There's a few things that are different, and in fact, the the main thing the court tossed out of the Illinois law is not in the mod law, and that's the data minimization part, which I'll get to. So really, the court's decision almost fully support what is an s one thirty five just first, but, again, there are some things to think about here. So it just came out two weeks ago. The court initially issued an injunction, preliminary injunction. That's why the committee, I think, stopped working on it last year. So it's somewhat of a surprise when the court changed its mind that initially issues a preliminary injunction for the bankers in Illinois, and then for that committee, we have upon further consideration, we've decided to grant the not we basically undo the injunction and award the case to the defendants in this case, the attorney general of Illinois. So what I really this is a 18 page decision. I'll just read it word for word. I'm kidding. Please. Although, I I am you know, I this is what I do. Right? I love when a court says, early humans first venture. I'm too barter and economic extranny. What? What? Caveman?

[Unidentified Committee Member]: What am

[Rick (Office of Legislative Counsel)]: I doing?

[Sen. Ann Cummings (Chair)]: I don't really doubt it.

[Rick (Office of Legislative Counsel)]: But it is you know,

[Unidentified Committee Member]: it's actually it's it's a the

[Rick (Office of Legislative Counsel)]: the judge does say this was a close call, which I think is interesting. The judge made a decision, but she I think she also said that this was a close call, whatever that's worth. I was I was gonna ask you.

[Sen. Randy Brock (Member)]: What's a close call in

[Rick (Office of Legislative Counsel)]: the tradition? I don't I don't a lot of that off opinions. I'll I'll tell you exactly. Actually, says close case. Excuse me. Let me pull up the, let's see, the merits right here. This is a close case, see? Not my words.

[Sen. Randy Brock (Member)]: Not, this is a close case. Close. Close. Close. Yeah, it's

[Rick (Office of Legislative Counsel)]: a close case. It is not a close case. I'm guessing the bankers will appeal. So again, getting to the the part of the the opinion that really matters is the argument that the bankers the Illinois Bankers Association made is that the bill is preempted by federal law. That was their main argument, that you can't do this because national federal law already regulates in this area, and when state tries to do something that is already being done or could be be done by the federal government or congress that the law is cramped and you cannot enforce it. So the main gutter law that bankers were referring to was the National Banking Act, which I am not an expert in. I think my colleague, Martine Royal, would be able to provide testimony if you'd like. But that law applies to national banks, obviously. And the way that the the payment is separated is into various entities. So as far as the nationally chartered banks is the first set of banks the the court looked at, and the judge said, you know, the National Banking Act does regulate national banks, and the state can't interfere with what the National Banking Act does. However, the the crux of this is that these fees that are charged to merchants are not charged by the banks. They're usually charged by the payment card networks. So while the banks are part of the transaction, the court said, yes. However, you're as a bank, you are not being directly affected by this. You are indirectly affected because you're part of the entire transaction. You don't set the fees. The payment card network set the fees, the 3%, whatever that happens to be. So I I could be more detailed, but that's kind of the crux of it is that the the pan the banks don't really have the preemption argument is not maybe the best argument. There could be the interstate commerce, but they didn't really know. Just

[Sen. Christopher Mattos (Clerk)]: real quick. I can't remember from last year's testimony, but can the bank take a slice of that fee or are they not involved at all?

[Rick (Office of Legislative Counsel)]: Can the bank take a slice of fee? I mean, every everybody in that transaction except for the merchant has some kind of cut

[Patrick (Joint Fiscal Office analyst)]: their out.

[Rick (Office of Legislative Counsel)]: Don't know how it's gonna I don't know how

[Sen. Christopher Mattos (Clerk)]: to pick it up, but So if I'm a member at,

[Unidentified Committee Member]: Scott

[Sen. Christopher Mattos (Clerk)]: Beck Beck Bank in Vermont based banking.

[Sen. Ann Cummings (Chair)]: Yeah.

[Sen. Christopher Mattos (Clerk)]: I swipe my card that I have through Scott Beck Bank. Mhmm.

[Sen. Randy Brock (Member)]: We'll take a cut.

[Sen. Christopher Mattos (Clerk)]: Okay. And then the card company takes a cut.

[Rick (Office of Legislative Counsel)]: No. I'm not the best person to ask. But I I I assume payments.

[Sen. Scott Beck (Member)]: The card companies gives me a cut.

[Sen. Ann Cummings (Chair)]: This is this is nothing compared to the interest payments, which is where Well, interest. I

[Rick (Office of Legislative Counsel)]: couldn't

[Sen. Ann Cummings (Chair)]: Well, yes.

[Sen. Scott Beck (Member)]: Yeah. That's a that thing gets

[Sen. Ann Cummings (Chair)]: a piece. Right? Everywhere. Good. Yeah. And the cost of providing the service.

[Rick (Office of Legislative Counsel)]: Yeah. The bank charges fees to the customers. This this this bill, s $1.35 is

[Sen. Randy Brock (Member)]: not a thing that has to be part of the transaction.

[Rick (Office of Legislative Counsel)]: It's just that swipe the tab. That's the part. And, the court right or wrong, in this case, said that they are not preempted by the National Banking Act. So those are the national chartered banks. The court then looked at the one over here. The applicability of oh, this so there was a in the Illinois law, there's this language about data minimization. Senator Chittenden was asking about the how do you how does a payment network know what part of a transaction includes taxes and gratuity? Are they gonna know everything you bought at that So the Illinois law includes language that makes it unlawful, I'm just gonna read it, makes it unlawful for an entity other than a merchant involved in a transaction to distribute, exchange, transfer, disseminate, or use the associated data, except to facilitate or process electronic payment transaction. S one thirty five doesn't have that. So this is the one part where the court said this is preemptive. So the Illinois section of law that required that data to be kept separate from that, that was that's been tossed out. That is permanent injunction. So Illinois cannot enforce that part of the law. And that be a problem. I don't know. It's like, realistically, how that works out. But legally, the court said that that is printed by the National Making Act, that this is now a little bit different. But the rest of it should say, just the data party. Because it's not in the Vermont law, I don't think you need to talk about it, happy to answer questions about it. The court then turned to the federal credit unions, which actually, in the preliminary injunction, they were not included, and the court continued to get ruled that way, that nationally chartered banks, federal credit unions are also must are applicable to they're not preempted. That's what I mean. They're not preempted by this National Banking Act or any other federal law. Debit cards, the court also said that they are not preempted by this law. So debit cards, nationally banks, federal credit unions, out of state banks also are not preempted by federal law. So out of state banks also are covered as a bill. Again, that's that's the headline. And the the reasons may differ a little bit. Maybe the federal law may be different, but it's if the argument is preempted and lost time and time again except for the data minimization portion. But the court did say that there may be other ways to stop. This might be a violation of interstate commerce. This might be a due process issue. But those points were argued, Sanders. That is my summary. Happy to go into more detail if you have specific questions about

[Sen. Ann Cummings (Chair)]: Okay, so this is Illinois is redemption issue for Illinois.

[Rick (Office of Legislative Counsel)]: At the district court level. It's always going to be people.

[Sen. Ann Cummings (Chair)]: District level. Yes. And that's okay.

[Rick (Office of Legislative Counsel)]: And it's effective July 1, so on July 1, we will know how well it works, if it's not been

[Sen. Ann Cummings (Chair)]: If it hasn't been appealed

[Rick (Office of Legislative Counsel)]: to Right, then it's not gonna stay by the appeals court.

[Unidentified Committee Member]: Okay. Yeah.

[Sen. Ann Cummings (Chair)]: All right, questions for Rick? Yes, thank you.

[Unidentified Committee Member]: Yeah, sure.

[Sen. Ann Cummings (Chair)]: Good, and, Deputy Commissioner for Banking, DFR, If you can help us understand this

[Aaron Farrance (Deputy Commissioner for Banking, VT DFR)]: I'll do my best. Better. Good afternoon, Aaron Farrance, Deputy Commissioner for banking and DFR. You know, I think the merits of the bill aside, my main concern with it is just the fact that if there is further court action and it does put a state chartered institution in a negative position compared to a national bank or a federal credit union, I think that's bad for the state chartered system. I I would not want our institutions to suffer. Otherwise,

[Unidentified Committee Member]: we really don't have an opinion on the on

[Aaron Farrance (Deputy Commissioner for Banking, VT DFR)]: the bill or with the cash cashless business protection bills.

[Sen. Ann Cummings (Chair)]: There was a time we were concerned that there was a migration from state chartered to national chartered and different ways that limited our power. Is that still a concern? Are we still seeing that migration?

[Aaron Farrance (Deputy Commissioner for Banking, VT DFR)]: No, not really. I think we're just seeing a consolidation of banks, Ukrainians, ball stripes, just smaller institutions are Exactly. Larger institutions. Okay.

[Sen. Ann Cummings (Chair)]: And if a state bank gets taken on by banks, it's a federally targeted bank you see, that's linked to something.

[Aaron Farrance (Deputy Commissioner for Banking, VT DFR)]: Yeah, I mean, you know, it is a concern from the perspective of DFR no longer has authority over that activity, but there really is no Okay,

[Sen. Ann Cummings (Chair)]: No so phosphorescent involvement. That was the concern. It moves our control Correct.

[Unidentified Committee Member]: Our ability to audit? Our ability to examine, our

[Aaron Farrance (Deputy Commissioner for Banking, VT DFR)]: ability to oversee any of their activities. Okay.

[Sen. Christopher Mattos (Clerk)]: So I'm seeing like Chase Bank pop up, Chittenden County. This bill wouldn't apply to Chase Bank because it's not chartered in for bond.

[Aaron Farrance (Deputy Commissioner for Banking, VT DFR)]: I think the bill would attempt to apply to Chase Bank and any financial institution anywhere in the country that issued a credit card that is then used in the bond.

[Unidentified Committee Member]: I think theoretically would be

[Sen. Scott Beck (Member)]: Oh, so subject used? Just used. Just used.

[Aaron Farrance (Deputy Commissioner for Banking, VT DFR)]: Well, it talks about the issuing back, doctor, of any bank in any

[Sen. Scott Beck (Member)]: part of the company. Whether they have a So what if presence here or not. Exactly.

[Sen. Christopher Mattos (Clerk)]: What if I go online, apply for a Chase credit card, and then swipe it. Where did that card originate? Was it from my IP address? Because I did it in Vermont, my mailing address.

[Aaron Farrance (Deputy Commissioner for Banking, VT DFR)]: Well, they issue the credit card, they will tell you which section of Chase Bank issued a credit card, I believe. Most credit card banks around South Dakota are starting to But get the

[Sen. Ann Cummings (Chair)]: it's not

[Sen. Ruth Hardy (Member)]: where the credit card is, it's where the purchase is, isn't it?

[Aaron Farrance (Deputy Commissioner for Banking, VT DFR)]: Correct. Yes. This is commerce in Vermont, but it will affect any issuing bank that has issued a credit card, in my opinion.

[Sen. Ann Cummings (Chair)]: I think that's what I just heard Rick say is that the Illinois court said that Illinois was not preempted from telling nationally chartered banks or banks that did not exist in Illinois or credit card companies that they had to abide by this law. Right. Yeah. That's my understanding. That's the big well decision.

[Aaron Farrance (Deputy Commissioner for Banking, VT DFR)]: I guess I'm just concerned that when it is appealed, the results of those appeals could still disadvantage state chartered institutions. Yeah. Okay.

[Sen. Ruth Hardy (Member)]: I'm sorry I had to step out on a different bill, but can you do Why that? Why would it disadvantage, and what would you not be able to regulate anymore? I walked in the middle of that census.

[Sen. Randy Brock (Member)]: Well, there was another injunction, as a result of an appeal, that said you cannot enforce this bill on a national bank, you could only enforce that on then state charter they would be subject to this new requirement. Parts of this bill also are gonna require investments in technology and manpower, like the requirements about, you know, you have to be able to merchant has to send in this information to that issuing bank in order to get the credit of that that tax amount that requires an investment in technology and people. It's like a it's not a a free situation.

[Sen. Ruth Hardy (Member)]: Right. But I think that is done on the point of sale. So it's it's the technology,

[Sen. Randy Brock (Member)]: actually, but They get you thirty days, not exactly sure what that's assuming you do. Is it a manual process? I don't know.

[Sen. Ann Cummings (Chair)]: Think before we talked about manual process, we had to put all the sales slips in

[Sen. Ruth Hardy (Member)]: an envelope. But you know I think that's true. I think that's That's

[Sen. Ann Cummings (Chair)]: that was the discussion. You you don't have the technology.

[Sen. Thomas Chittenden (Vice Chair)]: Yes.

[Sen. Ann Cummings (Chair)]: The machine you you have doesn't separate out those different sales. I believe the bill says you submit those sales with the breakout of what should charge beyond.

[Sen. Scott Beck (Member)]: I have a pretty sophisticated POS system. I would have no way of running a report to understand how much in taxes were charged to credit cards.

[Sen. Ruth Hardy (Member)]: But but and don't you have to pay those taxes? I mean, so I'm sure you know what those

[Sen. Scott Beck (Member)]: taxes to the penny what I what I collected and what I have to remit, but I have no idea whether that person paid cash, check, credit card, gift certificate, gift card, whatever. No idea how they were paid for it.

[Sen. Thomas Chittenden (Vice Chair)]: It it had to be transaction transaction. You wouldn't bundle this all at the end of the

[Sen. Scott Beck (Member)]: month because returns, transaction receipts. I'd to literally print a duplicate receipt for every transaction. And then if somebody added up at the end of the month, it would

[Sen. Ruth Hardy (Member)]: You can't do just like, this is how many sales on credit cards we had of books.

[Sen. Scott Beck (Member)]: I can see I can see No. I cannot I cannot see I cannot tie this tender to item purchased. I can see how much credit card transact and how much credit card is collected. I can see how many books were sold. I can see what the sales tax is or the meals and rooms tax, but I have no capability to say how much of my sales tax that I collected was paid by credit card. Don't have it. That makes sense as to why businesses print new receipts. The Like the credit card thing? No. I you would literally have to print every every receipt to answer that.

[Sen. Ann Cummings (Chair)]: When I had yes. When I was had boutique shop, I had a booth

[Unidentified Committee Member]: that

[Sen. Ann Cummings (Chair)]: They was charged me for credit card sales. I could go through every one of my slips and see which ones were paid by credit card Mhmm. And which book. I can tell you it was time consuming, and I'd have to spend a lot of money on credit cards to make it

[Patrick (Joint Fiscal Office analyst)]: Oh, yeah.

[Sen. Ann Cummings (Chair)]: You might because of that.

[Sen. Ruth Hardy (Member)]: You're answer my second question. Just got lost in all of this conversation, which is what what do you would you not be able to regulate? Is it it's the out of state banks? Is that what you mean? The I

[Sen. Randy Brock (Member)]: I guess I was just I think I was talking about how we we don't have the ability to oversee a national bank or their activities in general at the UFR in terms of convergence. Is that what you're

[Sen. Ruth Hardy (Member)]: I don't know. I walked in on you saying you refuse our ability to regulate, and I was I was my question was what did did you lose your ability to regulate?

[Sen. Randy Brock (Member)]: Yeah. I think a good question when you're outside that was related to the consolidation of banks in general, that's what I was referring to. The state charter merges into a national bank, we sort of we no longer have the ability

[Sen. Ruth Hardy (Member)]: to Oh, okay. So the bill wouldn't. It's just It's not

[Sen. Randy Brock (Member)]: the bill.

[Unidentified Committee Member]: Okay. I think. General I think.

[Sen. Ruth Hardy (Member)]: When a when a locally chartered bank comes Right. Subsumed by a larger national bank, that's what you And then Okay. And I think part

[Sen. Ann Cummings (Chair)]: of it is consuming. This is one ruling that you're gonna hear. It's been appealed in the next court versus this ruling, and the judge did say it was a close call. Do we want to put this in action? No. We we could end up, like,

[Unidentified Committee Member]: Then

[Sen. Ann Cummings (Chair)]: the question is, do can the credit card companies come back and say you owe us? And do or if it says that national banks that states can't regulate national banks like this, then what do we do? Because we don't know yet. We've got one opinion by one judge who said it

[Unidentified Committee Member]: was a

[Sen. Ann Cummings (Chair)]: close call. So I think we're doing a cost benefit or a risk assessment as we go through this process and

[Sen. Randy Brock (Member)]: see where it goes. I think we've learned a lot over the years about being first in the nation with something. Almost invariably we get burned.

[Sen. Ann Cummings (Chair)]: We will see. One of the

[Sen. Randy Brock (Member)]: questions, if you ask the Attorney General how much would it cost to defend something like this.

[Sen. Ann Cummings (Chair)]: They say nothing. Should never. But we've done that. I forget what the last item was we did. Anyway, do we have any further questions?

[Sen. Ruth Hardy (Member)]: Hope to get far from you. Or we do have other witnesses?

[Sen. Ann Cummings (Chair)]: We have other witnesses. Yes. Okay. Thank you. Mhmm. Next, have Dan Swanson. Dan, think you're good. Just ask if you could introduce yourself for the record and then the floor is yours.

[Dan Swanson (Attorney; representing retail grocers association)]: Thank you, Madam Chair. Dan Swanson, an attorney based in DC, though I was born here, appearing on behalf of Long Retail Grocery Association. You all actually invited me, I appreciated last April for the hearing to hear via Zoom. I was happy to do that. In my experience, I've worked for about seventeen years for Senator Dick Durbin of Illinois, who was the author of federal debit card reform interchange fee legislation in 2010. Also worked on credit card reform since I was a staffer from 2006 until 2023. And just in response to the questions that that you all were asking of the previous witnesses, It is important to focus on specific interchange fee at issue here because it is unique amongst types of fees that banks charge. So when a transaction happens, when someone pays by card, $100 transaction at a restaurant, Typically, there are several fees that are deducted from the transaction amount as the money passes from the cardholder's bank to ultimately the merchant's account. Several different participants in the system each deduct a fee. You have the merchant's bank will deduct a fee for their services. You have the payment card network. Visa or MasterCard will deduct a fee that they keep, and then the card issuing bank, so if your card has been issued by Chase with the Visa logo on it, then Chase deducts a fee. That's the interchange fee that the card issuing bank keeps, and it's the biggest fee component of all of this. It's usually 2% to 3%. But it is unique because Chase doesn't set the fee rate for the fee that Chase gets. There are fee schedules that Visa and MasterCard publish for all of the transactions for any card with a Visa or MasterCard logo. These transaction categories set the rates that the banks get and charge and deduct from the transaction amount on each transaction. So, Mastercard has the same thing. Thousands of banks that issue cards and credit unions all follow these fee schedules. That's unique. There is no other type of banking service fee that is set like that. Your interest rate, your annual fee for your bank if you're a cardholder there, your late fee, each bank sets that on its own basis. If you don't like the rate you're getting, you can go to the bank down the street and try for a different one. But all of the thousands of banks in the Visa network, all of the thousand banks in the Mastercard network follow these fee schedules. There's not a single one out there that deviates from them. So that's important operationally for these bills, but also for the legal analysis. So the judge in Illinois, Illinois bill, which S-one 135 is similar to, said for these interchange fees, you have to make sure that these fee, and again, these are largely set as a percentage of the transaction amount. Usually they actually do a percentage plus a flat fee, so like 2.5% plus a dime per transaction. They're saying you can't apply that percentage to the portion of the transaction amount that is tax and tip. And the Illinois law and S-one 135 will say there's a couple different ways that you can convey that information. If your point of sale system allows you to do it at the time of the transaction, you let us be known then. So when they apply this rate, the 2.5%, they subtract tax and tip amount to the amount that they're applying it to. Or the same for merchant doesn't have that ready to go at the time of the transaction, they can send it afterwards and get a rebate for it. That's what the Illinois law would say. And so the financial industry sued, meaning after that saying this impermissibly intrudes on federally granted authority for banks to charge fees. That was the preemption argument that they made there. And after the initial analysis, once the court looked more at what these types of fees are, that's what the case really came down to. These fees are different. And she said all of the different sources of federal authority for banks to charge fees and all the case law and preemption that's been built around this type of ad, those are for fees that banks set for themselves on a competitive basis based on their own base soundness and sound banking principles. That's not what these interchange fees are. Whereas preliminary state of litigation, it got all confusing about banks versus credit unions versus in state versus out of state with this decision that's now been made on the merits. It's all about the fee. It's this type of fee that Visa and MasterCard set on behalf of the banks. That's what she says state are not so the judge said states are not preempted from regulating. So that's what you're hunting on. There's a lot of other fees in the system. Visa and MasterCard charge fees for themselves. That's a business charging a fee for itself. That's not an issue here. When the merchant's bank charged a fee for their services, merchants can switch to a different bank, each one charging the rate that sets itself. That's not the problem. The problem is these fees that Visa and Mastercard set uniformly on behalf of thousands of banks. Some more pointed. Is better. Sorry, With respect to s one thirty five, I think the biggest issue which the deputy director and others have highlighted is concerns from folks about who this would be enforced against. The bill includes basically all participants in the payment system could have actions brought against them by the AG or by private rate of action if the fee is charged on the tax and tip portions. You could sue network, Visa, Mastercard. You could sue the card issuing bank, Chase. You could sue Fiserv. If that's the merchant's bank, you could sue any other participant in it. I I see that senator Percic has introduced a new version of the bill, which narrows that to just have the enforcement targeted on the payment card network. Visa and Mastercard are the ones who set the fee rates and the rules that everyone else follows. So all you have to do is hold them accountable and say, you guys need to figure out how to make sure that these fees are not imposed on the tax and tip portion and not have the credit unions or in state versus out of state banks concerned about whether actions might be brought against them. So I think we are seeing, you know, a shift in focus with folks, especially after this court decision, realizing, okay, the the center of the action here is the payment card networks. And the judge pointed out, if if there were no state authority to it it basically she had found for preemption there. This would be a model for banks to basically get all of the fees they charge out of regulation. They would just set up a third party company like Visa or Mastercard to set fees on behalf of all of them. There's no federal banking regulators with Visa and MasterCard, and if states are currently from regulating them, they can just do this with all of their types of fees. The judge said that that can't be how the system is supposed to work. You know, Congress has made clear that that's we're not having blanket preemptions for everything that that banks do. So a a approach, you know, which would be different from s one thirty five, but but is in a different bill that's been introduced by focusing on Visa and Mastercard and saying, you guys have to ensure it doesn't happen. You can be sued if it's still happening in your systems, and they can dictate like they do now for everybody in the system how to make that work. So that's where I think the data's heading here. So I'm happy answer any questions about any piece of that. I know that it's complex.

[Sen. Ann Cummings (Chair)]: We're trying to figure out where the other bill is. It should have been some economic development. It's in economic

[Sen. Thomas Chittenden (Vice Chair)]: Well, you haven't touched it.

[Sen. Ann Cummings (Chair)]: Development. Because it No.

[Sen. Scott Beck (Member)]: You got it first, sir. No.

[Sen. Ann Cummings (Chair)]: You did not.

[Sen. Thomas Chittenden (Vice Chair)]: You got this.

[Sen. Ann Cummings (Chair)]: I got this one last year. We haven't seen the new version. I'll need to talk to the secretary for Senate. Okay. Can I ask

[Sen. Ruth Hardy (Member)]: a question? Yeah. Okay. So thank you. That's helpful. Sure. I remember this from last year now. It's coming back to me. So in the it assuming we were to look at the new version and it's holding the Visa, Mastercard accountable for making the whole thing work. How would it how would it impact the local retailers? So what would they have to do? Would they have to change their point of sale system? Would it they have to do make would they have to hold all their receipts and send them in a in an envelope? And what would local banks that are chartered in Vermont have to do?

[Dan Swanson (Attorney; representing retail grocers association)]: Sure. So under the old bill and the Illinois law and new bill, merchants don't have to do anything. They can decide not to seek relief from interchange fees imposed on taxes and tips and just not send the information. Under S-one 135, that's an option. Under Illinois law, that's an option. Okay. If they have the data as part of their information that they transmit at the time of sale, they can get the fee deducted then. If they have it later, they can submit it under S-one 135 later. All those are options. If you do a a different version, like the the new bill center purchase that just focus on Visa and Mastercard, then there are multiple options that Visa and Mastercard can do to make sure that these fees are not being charged on tax and tips. The simplest, frankly, would be they can just change these fee schedules so it's not percentage based fees. Then you don't have to worry about it. If they were flat fees and for years, I've been saying, I don't know why these are percentage based fees. These are inflation fuel hours when you have a a a percentage based fee here. And particularly for debit. I don't know how that's justifiable to to charge these fees as a percentage. It just means that as inflation goes up, they collect more and more fees, and they've admitted it's very lucrative for them to do that. But they could change this to a flat fee and then you never have to worry about the percentage being applied to the tax portion. I'm sure they don't want to do that. There are other options that they could do. They could change the fee rate to make clear to everyone in the payment system that they have to make sure that the tax and and tip portion is excluded before the percentage rate is multiplied against the transaction amount. And it doesn't have to be done at the time of transaction with the fees pulled out. I mean, worse right now, you pay a $100 at a restaurant, they get 96 at the end of the day. You could have it where they get a 100 and they get a bill at the end of the month saying, here's the interchange fees that you were owed. I'm sure banks wouldn't wanna do that because they wanna keep it afloat, but you could do that and make sure that they're complying on this. Or Visa and Mastercard could set up systems where they say, alright, we'll have it. So here's how we're gonna set up the process for merchants to submit after the transaction the information, and you can send it over their wires this way. Here's the process where we'll have level two data, which transmits the tax information available for all transactions. You know, when they when they snap their fingers, the whole system changes. That's how it works right now.

[Sen. Ann Cummings (Chair)]: Mhmm.

[Dan Swanson (Attorney; representing retail grocers association)]: And they've done that. They've made disruptive changes that everyone's had to abide by before. If you remember when we switched from cards that didn't have a chip to cards that did have a chip, they just said do it and everyone had to do it. With respect to the banks, you know, if Visa and Mastercard are the ones on the hook for enforcement, then banks are not going to get sued if these fees are still being charged for them. They are not going to be held liable for it, and so Visa and National Guard are the ones on the hook to make sure that everybody makes it work.

[Sen. Ann Cummings (Chair)]: Of stamp. Up here, we've got a cash register. I'm pretty sure they they they can back things up. I go down to my local resource restore for Habitat for Humanity or any, if I'm lucky, craft spares, and they've got this little box sheet stick. It's pretty primitive. There's so how do Visa and Master Charge know what's tax and tip on that sale? And who I believe I have to buy the box or so what would that cost a merchant if all the merchants had to update to a newer, more sophisticated system? Sure. I I don't wanna see the merchants come out further behind. It would depend on their sales and how many sales. I can see a restaurant. Sure. That has a high volume of tips.

[Dan Swanson (Attorney; representing retail grocers association)]: Under the Illinois law and under s one thirty five, a merchant has the choice. They can do nothing and the fees will still be assessed on their sales tax and tips if they feel it's too much of a burden for them to pursue that, they don't have to. If they want to make sure their point of sale technology can transmit that information at the time of the transaction, they can do it that way. And again, there is a very competitive market for banks and processors to win merchants payments business. Those folks would compete with each other to try and serve merchants who want to do that. So I'm I'm pretty confident that the market would would serve to to make sure that happens. If a merchant, for whatever reason, power failure or something, I don't know, if for whatever reason they can't transmit at the time of the transaction, wants to do it later under the 11 law under 135, they have one hundred and eighty days where they can, through whatever method they choose to use, whether it's double printing receipts or having a separate point of sale tracker where they keep track of credit card payments, they can provide that later and get reimbursed for that. So it's the merchant's choice. If they feel all that's too burdensome, they just don't wanna do anything, they don't have to. And then if you take the approach where the onus is put on Visa and Mastercard to say you guys are the ones and the only ones who will get sued if these fees are still being charged, then the onus is on them. Again, the easiest way, being very simple, you could do it in minute, the whole system would adapt by it, is just stop charging percentage based fees, just make a flat fee, and then they'd be compliant, no one else would have to

[Sen. Ann Cummings (Chair)]: look at the No. They start to lose money on this, they're going to up my interest rate.

[Dan Swanson (Attorney; representing retail grocers association)]: But this is so again, Visa and Mastercard don't keep these fees. Yes. They are evicting entities on behalf of all the banks.

[Sen. Ann Cummings (Chair)]: But

[Dan Swanson (Attorney; representing retail grocers association)]: So the banks

[Sen. Ann Cummings (Chair)]: I think we know that the merchants were getting charged in order to cover the cost for all the points with that and all the promotional Yep. Things that were going on.

[Dan Swanson (Attorney; representing retail grocers association)]: So

[Sen. Ann Cummings (Chair)]: Those were being covered in large part That's by

[Dan Swanson (Attorney; representing retail grocers association)]: what they say. So according to Consumer Financial Protection Bureau, 2024, 191,000,000,000 collected by banks in cardholder fees, interests, late fees, annual fees. 191,000,000,000 for that. 187,000,000,000 in merchant fees, interchange fees, 45,000,000,000 paid out in rewards. So they're getting almost 400,000,000,000 in revenue from fees from Cardinals and merchants and paying about half of that out in rewards. They've got more money than they're Right, paying on new just

[Sen. Ann Cummings (Chair)]: tell them they have to lower their fees.

[Dan Swanson (Attorney; representing retail grocers association)]: Well, and federally on debit, there is a cap that's been put in place when Visa and MasterCard fix fees on behalf of big banks issuing debit cards. And Europe has capped fees at about a seventh of what they are here. I mean, other countries around the world have realized when you let Visa and Mastercard fix the fee rates on behalf of all the banks, there is no market competition to hold those fees And in banks don't really have incentive to produce fraud or make the system as efficient as it could be because they're guaranteed the same fee as every other bank, whether they're efficient or inefficient. So it's other countries realize you gotta either have market competition or regulation to keep the fees at a reasonable level and create the right incentives in the system. And we're pretty much the last country that hasn't addressed that at all on credit card. I'm sorry. I understand. Question two.

[Sen. Ann Cummings (Chair)]: Could

[Sen. Christopher Mattos (Clerk)]: this kind of be a revenue generator for a merchant? Because if you you don't have the system to be able to withhold that fee on the tax and you then send it off manually to the credit card company, then get that money back, you have no way of getting it back to the consumer. So wouldn't you in a sense be raising that, say it's a 3% fee on 6% tax, so

[Dan Swanson (Attorney; representing retail grocers association)]: So you're saying, I I mean, if the merchant has surcharged at the point of sale and then later on tries to get reimbursement for the Right. They justify the surcharge on. I think that's a fair point. I think the right now merchants are surcharging because if, you know, you sold $100 worth of food, you get $96 because of the transaction fees deducted, you're gonna raise your prices to cover the cost of the transaction fees. So prices are going up because of these fees. And now a lot of states, including Vermont, allow surcharges specifically on the credit card payers because that's the biggest fee. That's that's where they're getting hit the most. I I think that's a fair argument if you were going to have meaningful reform of the interchange fee, should you limit the surcharging that right now is sort of the band aid response to having this fee. Is not S-one 135 or these tax and tip bills are not fixing the whole problem. It fixes six to 20% of the problem. The rest of the fee that's being charged is still unregulated, no competition for it. But I think it's a fair point. Merchants should not be double dipping and surcharging while they're also getting reimbursed for the interchange, I think that would be detrimental to consumers. But when the interchange is not addressed, when that's still exorbitant because it's being central to price fix by Visa and MasterCard, surcharging for credit is at least sort of the lease valve to the merchant who go out of business. If you're single digit profit margin merchant and 4% of every transaction, you're losing because most people pay by card, you're not gonna stay in business if you don't have surcharge.

[Sen. Ann Cummings (Chair)]: Okay. Any other questions?

[Sen. Scott Beck (Member)]: No, this would be so much easier for consumers pay for the service, because then they

[Unidentified Committee Member]: can achieve whether it's exempt from

[Sen. Scott Beck (Member)]: the tax or credit cards, whether it's exempt

[Sen. Randy Brock (Member)]: from the credit cards.

[Unidentified Committee Member]: What do mean? It's not the

[Sen. Scott Beck (Member)]: consumer paying that fees.

[Dan Swanson (Attorney; representing retail grocers association)]: So you're saying half the fees, sort of a surcharge on every type of payment

[Sen. Scott Beck (Member)]: method? Between them and their credit card company. They buy something for they pay a $106, then whatever the money is, that's between the consumer and the credit card company.

[Sen. Ruth Hardy (Member)]: But I don't think I think the point is that this fee is is charged for the transaction amount. The consumer doesn't unlike other credit card fees where we can shop around for credit cards, this is a fee that everybody pays just for every transaction for the the, you know, benefit of using the the

[Sen. Scott Beck (Member)]: The consumer has has the power to pay for they don't wanna pay the interchange fee on tax. They can pay the tax in cash. If they don't wanna pay the interchange fee on the tip, they can pay the That's if they would the tip in cash.

[Dan Swanson (Attorney; representing retail grocers association)]: Well, the consumer So for the $100 restaurant bill, the consumer pays a 100. They don't realize that the merchant only gets 96. They just don't see those fees that are withdrawn from the transaction amount as it passes through their bank to their side. So it's always been a problem of consumers not understanding their choice of payment method actually really impacts their local pizzeria.

[Sen. Scott Beck (Member)]: They'd understand that they had to pay it.

[Dan Swanson (Attorney; representing retail grocers association)]: And that's what the surcharging is starting to do. You're starting to see consumers saying, what the heck is this 3% surcharge for credit? Why am I being assessed this? And now they're realizing there is a price and cost to these different things.

[Sen. Ann Cummings (Chair)]: Consume that, my local restaurant has gone up on its prices to cover the increased cost caused by tariffs, caused by fees, and I doubt that the price is going to come down if we do away with either one of them unless they end up in a highly competitive market.

[Dan Swanson (Attorney; representing retail grocers association)]: Think would always depend on the competitiveness of the retail sector. So gas and groceries are probably the most price sensitive retail sectors. When you cut costs that go into the product, usually that does get passed under consideration. For high end luxury handbags, probably not.

[Sen. Thomas Chittenden (Vice Chair)]: Two points, I mean, merchants do have that choice. My my mechanic is he gives me a 10% cash discount because he doesn't wanna pay these fees, and then I

[Sen. Ann Cummings (Chair)]: think That's the gas station.

[Sen. Scott Beck (Member)]: Exactly. Or

[Sen. Ann Cummings (Chair)]: I get 10¢ a gallon off because I have a couple of farms debit card, and they are saving that. I'm not

[Dan Swanson (Attorney; representing retail grocers association)]: I just need to

[Sen. Thomas Chittenden (Vice Chair)]: get 5% off. It's not an Instacart. It's just a little

[Sen. Ruth Hardy (Member)]: But I think that, like, the point of a bill like this, and, I mean, to your point is we're one we're the only country in the world that doesn't regulate these kinds of things. And so should we say, well, this is this is on the consumer to take care of. This is on the individual instead of actually going going after and regulating the massively, massively profitable Visa and Mastercard. Those are the people who are bilking consumers, and the answer isn't, oh, well, we should it's on the consumers to not be built.

[Sen. Ann Cummings (Chair)]: So okay. I don't know that I know. That's isn't a fair word to use. We haven't had any test of both. Federal level. I think we will see if we can find out what Europe does, but the operative word there is country. May know that

[Sen. Ruth Hardy (Member)]: Fair enough. Great. No. She's not a country. When your federal government is not doing its job, then we're the next stopgap.

[Sen. Ann Cummings (Chair)]: We have very limited ability.

[Dan Swanson (Attorney; representing retail grocers association)]: And that again was what the Illinois litigation was about, is it's only a federal prerogative because of preemption, It came down to the nature of this unique fee that Visa and MasterCard set off back of banks. Think for other types of fees in the system, court might have said it differently, for this fee, long as Visa and MasterCard are charging it on behalf of banks, They are not banks regulated by the Feds. They said states can step in and act. I think we will see a lot of different efforts by states. Under this court decision, states could cap. States could do what Europe has done and post caps. It's a large amount, just even on the tax and tip piece, that is going out in local communities to Visa, MasterCard, Chase, Wells, Bank of America every year. Every year that the status quo persists, it is a lot of money. So that's that's the tension.

[Sen. Ann Cummings (Chair)]: So we will see if we can find out what Europe does. We will I know when senator Welch was here on this committee, he was very interested. We worked with him for doing some original just limits. You can now say you have a $10 limit to use a credit card. You can't buy a pack and come with it. The merchant chooses. Yeah.

[Dan Swanson (Attorney; representing retail grocers association)]: He he was the main author of the US House of Representatives of the debit reform that that Yeah.

[Sen. Ann Cummings (Chair)]: So we will talk to his office and see if they can help us figure out what would be the best step forward.

[Sen. Scott Beck (Member)]: And I call him

[Sen. Ann Cummings (Chair)]: the general office. I got a couple more.

[Sen. Thomas Chittenden (Vice Chair)]: And so I I definitely appreciate this, and I definitely agree that the country should do it. I just wanna also state that cash isn't free. I mean, the handling cost of cash, by some estimates, is four to 15%. So these credit card companies do provide a valuable service in reducing the accounting, reconciling, bank runs, audit time, loss, slippage, theft, human error, counterfeit, lower spend. So I'm just saying that they're not all bad. These fees are in many ways cheaper than collecting cash for everything, even tax and tips. They provide a useful value to the economy. Sure.

[Dan Swanson (Attorney; representing retail grocers association)]: I think the question is, are there competitive markets for all of those? For green trucks and for cash registers and really again, two thirds of payments now, retail payments in the country are made by card. Visa and MasterCard have 85% of the network market for cards, credit and debit. You know, there isn't competition for these fees. That's that's what's unique about all this, and that's why the Illinois case came out the way that

[Sen. Thomas Chittenden (Vice Chair)]: I don't know. We're seeing regulation and rating a benefit, but they just wanna acknowledge. They do provide useful value to the

[Sen. Ann Cummings (Chair)]: Only two third. Nobody forces

[Unidentified Committee Member]: us to try grow in cash. I was gonna say that for me. It's

[Dan Swanson (Attorney; representing retail grocers association)]: the restaurant industry, it's 80% now. Mean, it's I should call this. Is shrinking fast.

[Sen. Scott Beck (Member)]: Does your company reward

[Dan Swanson (Attorney; representing retail grocers association)]: They do. So they will say know, friends of bank groups who will say, well, they have fewer banks, so it's different dynamic. But go online and look at German rewards cards, Visa and Mastercard, you'll find them. But the European Union for the entire continent, you know, this is almost ten years ago now, said, we this is not fair the way it's structured right now. We're gonna cap it in 0.3% for credit, 0.2% for debit, which is, you know, it's 3% here for credit, so it's a lot less.

[Sen. Ann Cummings (Chair)]: Okay. But that again. Sure. Other times.

[Dan Swanson (Attorney; representing retail grocers association)]: I mean, you look around the world. Yep. Thank you. Okay.

[Sen. Ann Cummings (Chair)]: Where's Delia?

[Sen. Ruth Hardy (Member)]: Craig.

[Unidentified Committee Member]: Okay. It's a key part of the. Painting

[Sen. Randy Brock (Member)]: and its. I'm gonna for us.

[Sen. Thomas Chittenden (Vice Chair)]: Covers in the house or covers in the suburbs?

[Unidentified Committee Member]: Covers in the house. I haven't seen you guys either.

[Sen. Ann Cummings (Chair)]: Maybe not. That sounds for sense.

[Chris D’Elia (President, Vermont Bankers Association)]: Record, Christina, president Vermont Bankers, subseed to excused the hoarseness. Nah. So it's okay for me to be sitting in the office.

[Sen. Ann Cummings (Chair)]: We have cough drops.

[Sen. Scott Beck (Member)]: Oh, believe me, I'm walking from the secret. It's all good.

[Chris D’Elia (President, Vermont Bankers Association)]: Very interesting comments and very interesting questions. But I wanna go back to where I think we are today. Separate from country, separate from the EU, separate from our own country. And where we are today is that you have one judge and one court in Illinois that has rendered their decision. And the Illinois case has been appealed. It was appealed, I believe, on February 13 to the Court of Appeals, Seventh Circuit. And there's a sense of urgency in that appeal because, as you heard, there's the implementation date of July 1. So this, in my mind, is moving on a faster track because of that implementation date. So that's the only change. We've got a different venue and we have one rule of judge. And you deal with the banks and credit unions in Illinois and the Nationals are subsidiaries of So banks and credit separate from the merits of do we like this, do we like that, is the landscape still very much unsettled because of that appeal. And the question for you all that you wrestled with last year was, do we wait and see until the courts resolve that issue, or do we do something in Vermont that might open up the door for our own litigation? And I think all of you, some biting their tongues, said, sure, we'll, we'll wait. And here we are, you know, in there. And fortunately, the court case in Illinois got delayed. I thought the judge was off, was reassigned you with that vote. Ginsburg, pending the final, anybody else. So at this point, we're back in court. And we would say to you today, in any discussions regarding any bill on interchange, it still seems very appropriate or as much as your desire to provide some solution of relief, it seems appropriate for the Illinois case to finish out because we are talking about one state with an international payment system. And while it is done in other countries, one state changing the international payment system is why there's such a vigorous something that's going on right now. I would suggest to you that when we get past these issues of the court case, the discussion that you just had, the list that Senator Chittenden just read is a microcosm of what you would have to consider for any bill that you wanna move forward. Because I know you guys wanna do your due diligence and come up with good public policy. So this is only my list of what you would what we would suggest you would wanna look at. And that's our transactions process.

[Sen. Randy Brock (Member)]: Who are all

[Chris D’Elia (President, Vermont Bankers Association)]: the players in the transaction? What is the interchange? What are the fee for service structures? What's the competition in my process? Because you not only have the merchant bank, issuing bank, but there are processors that may be in there as well. What are the real costs? I would disagree that it's 4%. Benefits of increased sales that you would want to hear about. No fraud liability to the merchants. Any fraud liability falls back on the institutions who are the issuing credit cards. What the bill does, changes in technology is a real issue, because as you heard from Senator Beck, he's got one system. Right now, the technological changes to get to a system where you're pulling elements of the transaction out certainly can be created, but they're costly, and they're going to be costly for the merchants. The notion of a merchant doing this from a paper based system is certainly possible, but if that's gonna require that merchant to go back to every issuing bank that's out here, that's gonna be a phenomenal challenge. Refunds credit, open ended liabilities, what's happening in other states from run surcharge, minimum creditors allowance, you just had a brief discussion about that, financial institutions decisions. I would also submit looking at current Vermont tech policy. What do we not test? How do we treat gratuities under Vermont law through the Department of Labor? Interchange is deductible as a business expense, federal and state regulations on gratuities, etcetera. These are a lot of issues in why these discussions are so complex, and why there's been challenges to create that national movement. You're absolutely right. I was here when Senator Welch was talking about these issues, and while he is a friend, obviously, have disagreements on these, but it was a national policy on the debit card. So I I appreciate the well intentions because to Senator Hardy's point, these are our customers out there. We have seen their experiences in a current environment, whether it's tariffs, whether it's the cost of material, the cost of food, the cost of fuel, has had an impact on all of those types of customers that are bank customers. So we're not we're not poetic to that, but this is a bigger complex issue that you'd have to look at the, that we would ask people to look at these issues, and would want to bring the information to the table to frame why physicians are taking the way they are.

[Sen. Ann Cummings (Chair)]: Thank you, Ms. Cordelia. Thank you, Sandy.

[Sen. Ruth Hardy (Member)]: This reminds me, Madam Chair, and I know you're familiar with this issue and Senator Gulick is who just left, but is pharmacy benefit managers who are like the the the middle people in the cost of prescription drugs that drive up the cost of prescription drugs. And every time there's a bill that tries to regulate not suggesting that you're doing this.

[Sen. Scott Beck (Member)]: I appreciate that.

[Sen. Ruth Hardy (Member)]: But every time there's a bill that tries to to to regulate pharmacy benefit managers, they come in and they give you a, you know, a song and a dance about why they shouldn't be regulated and how they actually, you know, lower the cost of drugs and save the system money and blah, blah, blah. And they give us lists and lists and lists of things that we should consider. And, you know, what but the reality is, and there's a lot of evidence about this, and DFR has actually done a lot of great testimony on it about how they drive up the cost of of prescription drugs and how they because they're not regulated that makes it even worse. And this one feels very similar. Are these fees that are charged for transactions only, not for and not even transactions that are like for the network, you know? So it it's creating this fee for something that nobody sees, that nobody knows why we need it, and it is it it is driving up the cost for consumers and driving up the cost for our businesses in Vermont. And while I appreciate that there's a lot of complicated things we need to consider and that the court case is not yet resolved because that's how appeals go in this country. But I it just seems like we shouldn't just say there's nothing we can do because there are things we can do. And while while it'd be better if we did it on a national level like other countries have, I still think just throwing up our hands is not the right response. And, you know, I I I spent time in Europe and the fees there are much, much, much lower. The cost of goods there right now is lower too. So it it is it is not we're not doing our people any favor by ignoring this issue.

[Chris D’Elia (President, Vermont Bankers Association)]: If I may, you've spoken like a veteran to go health and welfare that sat there for many years and we've been with that issue.

[Sen. Ann Cummings (Chair)]: Yeah. We also haven't fought this solution. Right.

[Patrick (Joint Fiscal Office analyst)]: But at least

[Sen. Ruth Hardy (Member)]: we've been trying. I've been trying.

[Chris D’Elia (President, Vermont Bankers Association)]: I would suggest senator,

[Sen. Ann Cummings (Chair)]: that

[Chris D’Elia (President, Vermont Bankers Association)]: the timing of the throwing up of hands, if you will. What do you think? We're not sitting here saying, throw up your hands, period, in the discussion. No. I hear you. We're saying is it may be too early for well, I would say it is too early in my opinion for Vermont to go down that road until there's more clarity given the court case, and we could spend a lot of time doing something that four months from now, this Seventh Circuit rule saying we've just wasted four months because we were going down on board with that base.

[Sen. Ruth Hardy (Member)]: That's fair. I just, you know, we, what we heard last year is we gotta wait for the court case. And then the court case was settled, and now it's like, oh, now we have to wait for the court case again. And and so I understand I understand. Just I just think that, you know, rather than throw up all these arguments about why we shouldn't do something. We should be setting the stage for when there is more clarity. We will do something because there's That is a different

[Chris D’Elia (President, Vermont Bankers Association)]: That's a that's different discussion and right. But then you're getting into you're you're moving away from legal issues, which are being debated elsewhere, and now you're getting into the merits of what the public policy should look like. And and again, I think it's important to understand all of the moving parts before you make those types of decisions, because there's a cost for the system, and that's what this is. This is a payment system that merchants and customers and others rely on, and you have not debating the amount of fees that you put on them, but you have to have the fee structure to pay for that service. It's not free to run that transaction.

[Sen. Ruth Hardy (Member)]: I know, but they make so much money. I'm not here the same system in Europe and they're not I'm

[Chris D’Elia (President, Vermont Bankers Association)]: not here to debate what they're doing in Europe compared to what you might wanna do here or that sort of thing.

[Rick (Office of Legislative Counsel)]: I

[Sen. Ann Cummings (Chair)]: think the risk we're taking is this is Illinois. We could go forward. I think it's pretty likely we'll get sued too in our district court. Having done a really good thing with data mining and PBMs and then been taken to court and had it be a very expensive court case, this body got gun shy for a number of years. We didn't do anything controversial because we lost a lot of money for doing something that wasn't ready for prime time. And if we're gonna do something, I wanna make sure it's something that's going to work, that it's not just going to devolve into a court case here, which I'm sure will take equal amount of time to work through and will And in order for it to work, the merchants,

[Sen. Ruth Hardy (Member)]: know, Costco, Walmart,

[Sen. Ann Cummings (Chair)]: they've all got the machines. Your mom and pops down the street don't have those machines. And I think that's so they they won't benefit. And I'm I'm trying to figure out I think we probably should look at the system as a whole and see if we can figure out what we can do. We did do a few things last time we looked at this with Senator Welch and I think we will see if his office can come in and talk to us about what they do and what they're doing and see if we can move forward if not all the way this year.

[Sen. Ruth Hardy (Member)]: We can bring them in and lobby them to do something a week. Federal level. Yeah.

[Unidentified Committee Member]: We can't. You don't need to pop pop. Very vigorous.

[Sen. Randy Brock (Member)]: By the way, on the federal system, if this is such a great idea, why hasn't the federal system moved on?

[Sen. Ruth Hardy (Member)]: Wait. Are you serious about that

[Sen. Ann Cummings (Chair)]: question? We're not getting into a lobbyist. I I with pharmaceuticals.

[Unidentified Committee Member]: I would just share with you the topsy-turvy world of having Senator Sanders and the President of The United States thinking about caps, etcetera. And oh my god, who would have ever thought there would be that type of alignment? It's a very, I mean, it's a very interesting dynamic down in deep state.

[Sen. Ann Cummings (Chair)]: When he goes far enough, I have seen that happen in his building once or twice.

[Unidentified Committee Member]: Right.

[Sen. Randy Brock (Member)]: The issue though is, and again it is the concern when I expressed, when we talked about this yesterday, the day before, whenever we talked about it, is this is going result in litigation. Just as the Illinois arrangement resulted in litigation if we move forward. And can we afford it?

[Sen. Ruth Hardy (Member)]: I think that is the point the chair was just making, yeah.

[Sen. Ann Cummings (Chair)]: This is going to be a

[Sen. Randy Brock (Member)]: ton of money and we don't know if we're going to succeed, we don't know if we're going to get anywhere, but we do know we're going have some very large legal bills.

[Sen. Ann Cummings (Chair)]: So we're going to move on. We have one more witness. Thank you. Appreciate it. Keep us posted. Of course. And we have Steve Rauschenberger, and he is on Zoom. Just brushing

[Sen. Ruth Hardy (Member)]: Can you hear me?

[Sen. Ann Cummings (Chair)]: You can.

[Steve Rauschenberger (Electronic Payments Coalition)]: Hey. Yeah. What what a delight what a delightful, committee hearing you're having. A couple quick things. I'm a recovering state senator from Illinois. I spent fifteen years in Illinois General Assembly, and I often tell people I got out of there without an indictment. And, you know, Illinois has kind of got a reputation as sending governors to jail. I happened to serve with Barack Obama, so did had kind of a colorful career there. Before I was in the legislature, I was a furniture retailer, three small family stores. So I go back to the days of the knucklebusters when you laid the credit card down and had to do the, the carbon slip on top of it. I know what it's like to do the the daily mail ins. I work today for the electronic electronic payment coalition, which represents issuing banks

[Sen. Ann Cummings (Chair)]: We just need you to say your name for the record and Sorry. Reset.

[Steve Rauschenberger (Electronic Payments Coalition)]: My name is Steve. My name is Steve Rauschenberger. I live in Illinois, and I represent electronic payment coalition, which is headquarters in Wash headquartered in Washington DC. EPC, the electronic payment coalition, includes most of the major networks, Mastercard, Visa, processors that, work for the merchants, as well as issuing banks and credit unions from across the country. My job is to help legislators in various states understand the implications and the impacts of the bills they're considering. The bill before you is one I've seen, many times before. It's been introduced in more than 30 states. In general, after robust public hearings, it's generally not advanced. The only state in the country that's decided to experiment with this is the state of Illinois. It passed in Illinois as part of a 3,500 page budget bill, without a separate public hearing or and without discussions with the financial services industry, which is one of the reasons I think that they've had some frustration with it there. I know a lot of legislators in Illinois today are a little disappointed that the federal judge didn't take them off the hook. They were kind of hoping the federal judge would decide this, and they wouldn't have to kind of confront what July 1 may look like. Just a couple things I wanna share with you about the system we're talking about. There's more than 12,000 banks internationally in the in the global payment system. So anyone from the Bank of Nova Scotia to the Bank of Montreal to the Bank of London can use their credit or debit card in the state of Vermont without a problem. Everybody understands each other. They they understand how the system works. They've agreed on what the fees and costs are gonna be. There's over nine networks that carry data and participate in the system, Mastercard and Visa being larger largest. There's Discover, American Express, Shazam. There's a whole host of others. The the Chinese actually own two systems that are participating. There's over 400 major processors who serve retail merchants in The United States and act as their kind of connection into the system. I I would tell you it's a robustly competitive system internally as well as externally. I probably no one in this room went last month without getting a credit card solicitation. We we all see how competitive the issuers are in offering changes, free, you know, free balance transfers, points, airline miles, anything to get customers. They're very competitive. Mastercard and Visa compete fiercely with American Express and Discover. Visa just paid for some sum of money to be the prime sponsor of the Olympic games. So only Visa cards work during the Olympic games. The the processors themselves that work for the retailers are intensely competitive. In addition, it's not just the the credit and debit system that takes payments today. There's Apple Pay. There's fintech. There's buy now, pay later. There's cash. There's checks. There are other competing and emerging payment technologies out there that are competing fiercely for the business with the merchants. So even though Dan and other people think it's not competitive, I would argue with you that it is. The percentage charged on a transaction in The United States for the last decade has either been in slight decline or flat. As a percentage of sales, interchange has not risen a bit in ten years. So the the increases that retailers are experiencing is from customer migration from cash or check or other payment forms to Mastercard or Visa or Discover or American Express, stimulated in large part by what government action was across the country during the pandemic. We've got a whole generation of young people coming up that carry their phones and wanna pay on Apple Pay, which is outside of our system. So this is a a trend that serves your consumers well. It's very intensely competitive. It it it works for merchants, except when they're told that it's too expensive and that they ought to go to their legislature for legislative relief. There are other countries that have chosen to regulate parts of the system, but there's a cost to those regulations. In The United States, access to credit is pretty widespread. About half of all retail transactions take place on a credit card, not on a debit card. In Europe, because they kept interchange at such a low rate, there's virtually no marketing of credit cards. 80% of the transactions in Europe by Europeans take place on debit. So access to credit is dramatically different. And in the American society where we think it's important for people to be banked and to have access to credit, the credit card system itself provides more access to credit than almost any other part of our banking system. It's also important to understand our system allows any financial institution in The United States to participate. Any merchant who sells legal product in the state of Vermont can be in the electronic payment system. There's no discrimination. There's no favoritism toward big box stores. Wall Walmart doesn't get any special advantages, neither does Costco or anybody else. So that's one of the reasons that I think big boxes have been aggressively marketing these ideas about changing the system. They'd like further advantage of the kind that they got during the pandemic when their competition, for the most part, was required to shut down. The if you take a look at the externalities, you say, is this system price competitive? We all know Walmart's big enough to have their own credit card. They choose not to. They choose to use the electronic payment system because it's less expensive. Most of the airlines today choose to take just the electronic payment system because it's less expensive for them to process credit and debit transactions than it is for them to set up a cash drawer for every one of their reservation as cash them in, cash them out, deal with change error, the threat of, robbery, etcetera, etcetera. So this is a system that works for your constituents. I would argue it's price competitive when you compare it to externalities. It's less expensive than Apple Pay. It's less expensive than buy now, pay later, less expensive than the fintechs that are being developed. It it's a service that works. So I I just always caution legislators to be cautious about their approach. Changes to the system will cause changes to how the system works. Couple things real quick. The interchange portion that the bill looks to regulate does not go to Mastercard or Visa. It does not go to the processor. It goes to the bank that issues the credit card. The bank that sends out that card with the chip in it that does the monthly billing, that takes the customer's calls, the bank that extends the unsecured loan on a credit transaction. So when you swipe your card at a restaurant for $250, it's an unsecured loan to that bank. If they approve it, they're they're standing in your place and sending in the $250 to the system to pay for its cost. So these are these are fees on unsecured loans. In The United States, in the last year, the default rate on credit card balances was about two and three quarter to 3%. If the interchange is 2% and the default rate on those charges exceeds that, this is not a big this is not a big profit center for the the banks that people wanna be upset about. Particularly for your Vermont based credit unions and your Vermont based community banks, they don't make money in general if you ask them on credit and debit transactions or that business. They do it as a service to their customers because they wanna stay competitive with other banks. That's not a problem in Europe. In Europe, the entire banking system is less than 20 banks. In The United States, we have a rich, diverse system with over, 10,000 banks nationwide participating. So I would tell you it's a good system. It it works pretty well. In Illinois, they're facing a lot of some real challenges with the July 1 implementation day. In Vermont, for example, it's not just sales tax that would have to be calculated and separated. Somehow the system to implement this bill would have to know the merchandise was either taxable or nontaxable, whether it was taxed at just the state rate or the state rate plus a local rate. You would have to understand what the the implications of your your meal and your meals and and hotel tax would be on it, whether there was a local option on that. In addition, it doesn't just limit itself to sales tax and meals tax. Your bill says any state tax or any state or local tax. So there'd have to be a discussion and understanding how the fuel tax works, how the cigarette tax works, how your liquor tax works in relationship to this bill. So it's not like it's a plug and play where it's you we can multiply the volume by your sales tax rate and come up with an amount to deduct. The banking industry would have to have an auditable system that their auditors and their regulators could accept to to make this work. So it's much more complicated than it seems to go simply from the stripe to the chip, where the industry was an eight year process. The first, they had to kinda come up with the chip. They had to then get to third 12,000 worldwide banks to agree to to migrate to the chip technology. They had to send the chip out to the people that build the terminals for the retailers and have them design new terminals so it would work. Then they had to test them, then they had to deploy them. In The United States today, over 5% of the retailers still have not installed chip readers. So this this is fifteen years ago when the chip was first introduced. So the the pace at which you can change the system, and, you know, if the the governments tell us to change it, we will do our best to adapt. But it's not simple, and it's not easy. We estimate for a million dollar Vermont retailer without without tips. So this would be a bookseller or a small store. Their savings from this bill might be as much as 42 to $48 a month. For that, they'd have to change their systems, change their input, and and buy new software and hardware. The beneficiaries of bills like this are not main street retailers. The people that would make money are the ones who already have systems in place that can actually do segregation now at the data level necessary to connect into the global payment system. So respectfully, I I guess I would tell you, walk slowly, make sure you understand the implications of what some of these things are. This is not a simple bill to implement. And it's basically asking your banks and your credit unions as well as the national banks and international banks to to carry a free loan balance. In the case of a a restaurant with a 20% tip and a 6% or 9% meals tax, you're saying them on a $600 transaction, you can only earn the fees that you generally earn on 400 of that transaction. You eat the tip and the tax. It's essentially what they call free carriage. So there there's a risk in Illinois with the impending date that one of three things could happen in Illinois. One, we think some international banks and some small market banks that are they have very little market in Illinois may simply withdraw from the market, turn off their cards in that state. We think some banks may say, you know, get it. We we understand what you're doing. We wanna comply with the law, but we're not gonna carry the tax and the tip amount on the system. You can put your merchandise on your credit card or your debit card, but you need to settle other amounts in cash. The reason they do that is the thousand dollar per transaction penalty is at high risk, number one. There's hundreds of thousands of transactions every single day. So a thousand dollar per transaction for a 25¢ error represents a risk to smaller institutions, even to larger institutions. The the third thing they could do if they decided to in Illinois, and they we're not sure how long this would take, is build some kind of workaround to allow multiple transactions at the point of sale. So they put the merchandise on one transaction and code it zero one, figure out a coding for the sales tax portion or the tax portion code o two. And if there was a tip amount, they would have to do a third transaction. So they could segregate those in the system with certainty knowing that they weren't breaking the law subject to a thousand dollar per transaction penalty. But those those are the the system being modified and going through the process necessary to rewrite hardware and software, those are the three choices we think issuers are faced with. In any of those three cases in Illinois, July 1, we think we're gonna see credit card chaos. And we think, you know, our our the governor in Illinois would like to be a presidential contender. We're hopeful that we can kind of continue to explain to them the the problems with fast tracking this kind of legislation for relatively small benefits for main street retailers. This emerged as a deal, involving the big box retailers in Illinois losing a, a favorable, $100,000,000, tax situation. And the trade off when they passed this was to give the big boxes this bill in Illinois. So I'm I'm a former merchant. Merchants are, the the customers of the of the networks. We want them to succeed. We want you guys to be successful. We want Vermont merchants to do well. We would just caution you and say, breaking up the global payment system, to kinda go after one tiny element for relatively small, amounts is is maybe not the the the best pathway for you to help retailers or and, yeah, certainly doesn't we don't believe it helps your customers. When they regulated debit, it was 10 back in 2010, the Federal Reserve of Virginia did a study on what happened to to retail prices because there was a lot of discussion that the regulation of debit would lower prices. They found 96% of retailers did not change their prices. It fell to their bottom line. It did change, however, the amount of, debit cards issued in The United States. At the time they passed the Durbin amendment, debit represented about 60% of all transactions, and credit was less than half of that. When debit became not profitable for institutions where they couldn't afford to to do them, they didn't wanna do them anymore, cat credit transactions rose and and debit transactions got to be less. Again, you you get an effect when you make a public policy choice. Last thing, and I I will promise Jeff, the the idea of master or Mastercard and Visa setting clearance rates for transactions is not antitrust. It's not price fixing. Can you imagine an Uber where when you went to the app to get a car, they connected you to the driver and you negotiated the price each time? Or when, you know, you there's lots of what they call two party markets where two sided markets where there's an intermediary who makes the transaction work by setting a price to clear the transaction. There's no requirement that any bank or any retailer in America accept the, the the prices listed by Mastercard and Visa. They can have all of the, bilateral agreements they want with each other. In fact, Costco does bilateral agreements with their cardholders. So there's there's other ways to do it. What what those price lists do, those publicly available price lists that are voluntary and agreed to, they allow them the transaction to clear with certainty quickly for everybody. So we think that's a feature, not a bug. But thank you guys for letting me tell you a little bit about my side of the bill.

[Sen. Ann Cummings (Chair)]: Thank you. Are there any questions? I'm not seeing any. Thank you. Okay. Thank you for letting me talk. Thank you. I think that's good. We want to be on big Oh, wait. Wait. Oh. Oh. Oh. Oh. Yes. So we have an appointment to so. Senator Mattos.

[Sen. Christopher Mattos (Clerk)]: Oh, yeah.

[Sen. Ann Cummings (Chair)]: Yes. They're waiting upstairs, so we gotta run up with it.

[Sen. Christopher Mattos (Clerk)]: Nick Boshan? No. I talked to Mike Donahue over the weekend. He's on the board. And I think he was reappointed, like, last April or something like that. So I just checked in with him to make sure he wants to stay on board. Did he run into him in a grocery store?

[Sen. Ann Cummings (Chair)]: No. Just out when he was

[Unidentified Committee Member]: done. Yeah. Yeah. It wasn't on the phone.

[Patrick (Joint Fiscal Office analyst)]: It wasn't on the phone. It's all

[Sen. Ann Cummings (Chair)]: ridiculous. Yeah.

[Sen. Christopher Mattos (Clerk)]: Not that day. Yeah. So I just talked to him a little bit about it, said, I know the the meeting schedule on Betsy Kennedy a little bit heavier than other boards and what have you. And he said he was willing to continue to serve in that role.

[Sen. Ann Cummings (Chair)]: Was he on something else?

[Sen. Christopher Mattos (Clerk)]: He's also on the Human Services Board, right? Human Services Board.

[Unidentified Committee Member]: Yeah. Yeah. Okay. So he's

[Sen. Ann Cummings (Chair)]: Is he?

[Unidentified Committee Member]: Got a heavy workload. Retired?

[Sen. Ann Cummings (Chair)]: I don't know,

[Unidentified Committee Member]: didn't answer.

[Sen. Ann Cummings (Chair)]: Okay. Is that a motion?

[Sen. Christopher Mattos (Clerk)]: I would make a motion to confirm Michael Donahue as a member of the Embassy.

[Sen. Ann Cummings (Chair)]: Motion has been made. Is there any discussion? If not, all those in favor say aye. Aye. Opposed say no. I'm seeing that as seven zero zero. I love that you did that after you heard that. Done that, and they I've always known what the vote was.

[Sen. Christopher Mattos (Clerk)]: Well, I'm confused. Do I write down that I know? Yes.

[Sen. Ann Cummings (Chair)]: No. You just write down seven zero. This is going on the back page of the calendar. We'll get voted on mass some Friday.

[Sen. Christopher Mattos (Clerk)]: Yeah. This is the all not underlying days.

[Unidentified Committee Member]: Yeah. Yeah.

[Sen. Christopher Mattos (Clerk)]: Well, excellent. Thank you.

[Sen. Ann Cummings (Chair)]: Well, okay. Well, you need to get the original copy from Charlotte

[Sen. Christopher Mattos (Clerk)]: Yeah.

[Sen. Ann Cummings (Chair)]: Hustle it upstairs. If they

[Patrick (Joint Fiscal Office analyst)]: are, I'll

[Sen. Ann Cummings (Chair)]: go gray. I'll just push it down. Let's

[Unidentified Committee Member]: hustle. Thinking my end. Alright.