BILL ANALYSIS
SB 933
Page 1
SENATE THIRD READING
SB 933 (Oropeza)
As Amended May 3, 2010
Majority vote
SENATE VOTE :22-9
JUDICIARY 7-1
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|Ayes:|Feuer, Brownley, Evans, | | |
| |Huffman, Jones, Monning, | | |
| |Saldana | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Tran | | |
| | | | |
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SUMMARY : Prohibits a retailer from imposing a surcharge on a
cardholder who elects to use a debit card and expands the
existing definition of "debit card" to include prepaid cards, as
defined. Specifically, this bill :
1)Expands the definition of "debit card" to include a prepaid
card or other means of access to prepaid funds that may be
used to initiate electronic funds transfers and may be used
without identifying information such as a personal
identification number to initiate access to prepaid funds.
2)Prohibits a retailer in any sales, service, or lease
transaction with a consumer from imposing a surcharge on a
cardholder who elects to use a debit card in lieu of payment
by cash, check, or other means. Provides, however, that a
retailer may offer discounts for the purpose of inducing
payments by cash, check, or other means not involving the use
of a debit card, provided that the discount is offered to all
prospective buyers.
3)Provides that a retailer who willfully imposes a surcharge
contrary to the provisions of this bill and who fails to pay
that amount to the cardholder within 30 days of a written
demand, as specified, shall be liable to the cardholder for
three times the amount at which actual damages are assessed.
Specifies that the cardholder shall also be entitled to
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recover reasonable attorney's fees and costs incurred in the
action.
4)Specifies that charges for third-party debit card guarantee
services, when added to the price charged by the retailer if
cash were to be paid, shall be deemed surcharges for purposes
of this bill even if they are paid directly to the third party
or are charged separately.
5)Specifies that the provisions of this bill shall not apply to
payments made by credit card or debit card to an electrical,
gas, or water corporation and approved by the Public Utilities
Commission, as specified.
FISCAL EFFECT : None
COMMENTS : Existing law prevents a retailer from imposing a
surcharge when a customer elects to use a credit card in lieu of
cash or some other form of payment. This bill would extend that
surcharge prohibition to include debit card purchases. However,
as is also true with the existing prohibition on credit card
surcharges, this bill would permit a retailer to offer a
discount for the purpose of inducing payment by cash, check, or
some means other than a debit card. In all other ways, this
bill closely parallels the existing provisions in the Civil Code
relating to surcharges in credit cards. For example, a retailer
who violates the provisions of this bill must reimburse the
cardholder within 30 days of written demand by the cardholder or
be liable to the cardholder for three times the amount of actual
damages. A cardholder who brings an action to recover damages
shall also be entitled to recover reasonable attorney's fees and
costs. The bill exempts public utilities, who may continue to
impose surcharges on customers who pay their bills by credit
card or debit card.
While this bill will prohibit retailers from imposing a
surcharge on consumers who elect to use a debit card, it will
not eliminate the so-called "interchange fees" that those
surcharges are meant to cover. Thus the retailer then has three
options: 1) absorb the cost as the price of accepting debit
cards; 2) pass the cost, or some part of it, along to the
consumer as a "surcharge" or "service fee;" or, 3) factor the
interchange fee into the overall costs of doing business and
raise prices of all goods accordingly.
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Although this bill would prohibit a retailer from imposing a
debit card surcharge, it expressly authorizes the retailer to
offer discounts in order to induce payment by cash, check, or
some method other than debit card. Thus, if the costs of debit
card transactions do indeed outweigh benefits, then the retailer
could use inducements to encourage other forms of payments.
Although existing law defines "debit card" to generally include
bank-issued cards that initiate an automatic transfer from the
cardholder's bank account, this bill would expand the definition
of "debit card" to include "prepaid cards" that allow consumers
to prepay a certain amount, with the available balance then
reduced with each subsequent electronic transaction. According
to the author and supporters, the California Employment
Development Department is considering issuing prepaid cards for
recipients of unemployment insurance and disability payments.
Thus, under this bill, retailers would not be permitted to
impose a surcharge on these cards either.
According to the author, prohibiting surcharges on debit card
transactions is a natural extension of the existing prohibition
on surcharges on credit card purchases. Since the prohibition
on credit card surcharges was first enacted in 1985, debit cards
have become much more commonly used. The author believes that
consumers using debit cards should have the same protection as
consumers using credit cards. The author also argues that
extending the surcharge prohibition to debit cards is especially
timely in light of the fact that both federal and state agencies
have either begun, or are considering, distributing government
benefits through prepaid debit cards. These benefits, the
author contends, are generally distributed to those who can
least afford to pay a surcharge above and beyond the marked
price.
Supporters generally argue that this bill is a basic consumer
protection measure that merely follows the existing prohibition
against credit cards. They point, for example, to the
potentially perverse incentive created by prohibiting surcharges
on credit card transactions while allowing them for debit card
transactions, thereby potentially encouraging credit card use
and more personal and household debt. Other supporters stress
the misleading and deceptive nature of "check out" fees. That
is, a consumer selects products based upon the marked price but
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then only learns upon reaching the counter that the actual price
will be higher if he or she uses a debit card.
Opponents reject the notion that SB 933 is a "consumer
protection" bill. First, opponents point out that this bill
does nothing to eliminate or reduce the interchange fees that
retailers must pay to acquiring and issuing banks. Those fees
will still be charged to retailers, and retailers will be forced
to either absorb those fees or raise prices. "The truth,"
opponents argue, "is that this bill eliminates the transparency
that currently exists through point-of-sale disclosure, shifts
the costs onto the backs of small businesses, and puts the big
payment networks [credit card companies] in a position to raise
rates at will." In short, opponents claim, consumers will
still pay for using their debit cards, but this cost will be
less transparent - hidden in the costs of higher prices. "Small
businesses will suffer the brunt of increasing interchange
fees," opponents contend, "and consumers will pay more for all
goods and services in order to subsidize those who use debit
cards."
Opponents additionally contend that this measure will limit
consumer choices by forcing some retailers to refuse acceptance
of debit cards or establish a minimum purchase price (commonly
$10.00) for acceptance. Indeed, as noted above, the proposed
federal legislation would explicitly authorize retailers to do
just that.
Opponents contend that this bill will be especially hard on
small businesses. According to the California Retailers
Association (CRA), "very few retailers charge consumers for
debit transactions even though we incur fees on every card
transaction. Those that impose a charge are smaller merchants
or retailers who are recognized for offering low price products
or services." For small businesses with very small profit
margins, the opponents contend, the interchange fee is a
significant cost. "If those retailers are prohibited from
imposing debit card surcharges, they will ultimately be forced
to raise their prices which will have a negative impact on all
customers - not just those paying with debit cards."
Finally, the opponents also suggest that this bill is targeted
at retailers when the problem actually lies with the issuing
banks and credit card networks that impose these fees in the
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first place. The transaction fee does not originate with the
retailer, but with banks and credit card networks that charge
the interchange fees. Indeed, many opponents point to the fact
that retailers and merchants have initiated anti-trust
litigation against the major credit card companies challenging,
not only the allegedly excessive amount of the interchange fees,
but whether the credit card networks can contractually prevent
retailers offset interchange fees. (In re Payment Card
Interchange Fee and Merchant Discount Antitrust Litigation, MDL
No. 1720, E.D.N.Y.) Opponents allege that VISA is supporting
legislation like SB 933 in other states in order to achieve
through legislation what they may lose through litigation - the
right to contractually prohibit retailers from imposing a
surcharge to recover the costs of interchange fees. The National
Federation of Independent Businesses (NFIB) thus concludes that
"SB 933 favors the interests of big electronic payment networks
over that of the consumers and small businesses that drive our
economy."
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334
FN: 0005100