This docum ent does not reflect the intent or official position of the bill sponsor or House of Representatives.
STORAGE NAME: h0677b.COM
DATE: 4/12/2023
HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: CS/CS/HB 677 Electronic Payment Transactions
SPONSOR(S): Commerce Committee, Insurance & Banking Subcommittee, Caruso
TIED BILLS: IDEN./SIM. BILLS: CS/CS/SB 564
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
1) Insurance & Banking Subcommittee 12 Y, 4 N, As CS Sellas Lloyd
2) Commerce Committee 12 Y, 7 N, As CS Sellas Hamon
SUMMARY ANALYSIS
Electronic payments through either a debit card or credit card involve many parties to authorize, settle, and
fund the transaction between customer and merchant. A merchant will pay part of the transaction proceeds to
these parties. This amount is known as a merchant discount fee, and typically amounts to 1-3% of the total
transaction amount. The largest portion of the merchant discount fee is the interchange fee which is a fee
charged by an issuing bank to the merchant bank. The interchange fee allows for card benefits to the
cardholder but also reflects the risk of nonpayment from a cardholder as issuing banks will send out payments
to merchant banks before the cardholder pays the issuing bank.
The bill prohibits the charge of interchange fees on the taxes and tips that are charged paid by a consumer
through an electronic payment transaction. This applies to such transactions paid via debit card, credit card, or
any other payment device and approved through a payment card network. A payment card network can
comply with this prohibition by deducting the tax and tip portion of a transaction before calculating the
interchange fee or by rebating the portion of the interchange fee attributable to taxes and tips.
Violations related to interchange fee amounts are subject to a $1,000 civil penalty per violation. Additionally,
the improper fee amount must be refunded.
The bill also prohibits entities involved in facilitating or processing an electronic payment transaction from
utilizing or exchanging the information collected except to facilitate the electronic payment transaction or as
required by law. Violation of this provision will constitute a violation of the Florida Deceptive and Unfair Trade
Practices Act and is enforceable by the Attorney General or local State Attorneys.
The bill has an indeterminate negative impact on state expenditures and no impact on state revenues and local
government. It also has indeterminate negative impacts on the private sector.
The bill has an effective date of October 1, 2023. STORAGE NAME: h0677b.COM PAGE: 2
DATE: 4/12/2023
FULL ANALYSIS
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
Background
Consumer Protection and the Florida Deceptive and Unfair Trade Practices Act
Generally, consumer protection laws focus on guarding against unfair and predatory trade practices
that harm, or have the potential to harm, consumers in the marketplace.
1
Certain consumer protection
laws are codified under ch. 501, F.S., which governs the regulation of trade, commerce, investments,
and solicitations. It also regulates the sale and advertising of goods, services, and consumer financial
products, such as credit cards, auto loans, and mortgages in the state. It includes several parts
providing to consumer protections to Floridians and visitors, such as the Florida Deceptive and Unfair
Trade Practices Act (FDUTPA),
2
the Aftermarket Crash Parts Act,
3
the Florida Telemarketing Act,
4
the
Antifreeze Act of 1978,
5
and the Patent Troll Prevention Act.
6
FDUTPA protects consumers from deceptive acts that mislead consumers, and protects the consuming
public and legitimate business enterprises from those who engage in unfair methods of competition, or
unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce and
broadly declares unlawful any unfair or deceptive acts or practices committed in the conduct of any
trade or commerce.
FDUTPA provides enforcement authority to either the office of the state attorney or
to the DLA depending on the circumstances of the violation.
7
The applicable enforcing authority may
bring an action to obtain a declaratory judgment, to enjoin any violator of FDUTPA, or on behalf of
consumers or government entities for the actual damages caused by a violator of FDUTPA.
8
Florida Attorney General
The Attorney General is the chief legal enforcement officer of the State and, absent express legislative
restriction, may exercise such power and authority as the public interest may require. The Attorney
General is a member of the Cabinet. As chief legal officer of the State, the Attorney General must be
noticed in certain proceedings under Florida law and may bring actions on behalf of citizens of the state
as provided for by law.
9
The Attorney General is also the head of the Department of Legal Affairs (DLA). The DLA is
responsible for providing all legal services required by any executive department unless otherwise
provided by law. The Attorney General, however, may authorize other counsel where emergency
circumstances exist and must authorize other counsel when a conflict of interest exists.
Electronic Payment Transactions and Interchange Fees
Even the smallest credit or debit card transactions involve a host of parties that facilitate the exchange
between the merchant and customer.
1
Georgetown Law, Consumer Protection, https://www.law.georgetown.edu/your-life-career/career-exploration-
professional-development/for-jd-students/explore-legal-careers/practice-areas/consumer-protection/ (last visited Apr. 7,
2023).
2
Ch. 501, part II, F.S.
3
Ch. 501, part III, F.S.
4
Ch. 501, part IV, F.S.
5
Ch. 501, part V, F.S.
6
Ch. 501, part VII, F.S.
7
s. 501.203(2), F.S.
8
s. 501.207, F.S.
9
See e.g., s. 501.207. STORAGE NAME: h0677b.COM PAGE: 3
DATE: 4/12/2023
These parties include the cardholder, merchant, merchant bank, payment processor, issuing bank, and
card association.
10
In a typical transaction, a cardholder will purchase a good or service from a
merchant through the use of a credit or debit card. At this time the merchant will send a payment
authorization request to the merchant’s payment processor who in turn submits the transaction to the
correct card association.
11
The card association will then send this authorization request to the issuing
bank where the transaction will either be approved or denied.
12
The issuing bank’s response will then
be sent back to the card association which sends the information to the merchant bank who sends the
information to the merchant.
13
The parties:
The cardholder is the buyer in the transaction and has a line of credit or a debit account with an
issuing bank.
The merchant is the seller in the transaction and in choosing to accept debit card and credit
card purchases will partner with a payment processor.
A payment processor sends payment information to the customer’s card association.
A card association
14
acts as an intermediary between the issuing bank (customer’s bank) and
the merchant bank as they relay both payment information to the issuing bank and the issuing
bank’s response to the merchant bank.
The issuing bank receives purchase information from the card association and either approves
or denies the transaction. It will inform the card association of its determination. Upon
determination from the issuing bank for a transaction the card association will inform the
merchant bank.
The merchant bank is the bank of the merchant and will inform the merchant of the issuing
bank’s determination.
15
A credit card transaction is made up of three processes, the authorization process, the settlement
process, and the funding process.
16
The authorization process happens near instantaneously and
results in either approval or denial.
17
The authorization process reflects the issuing bank’s approval or
denial of a transaction which is then relayed through the card association’s payment network to the
merchant, as described above.
The settlement and funding process reflect the movement of funds from the issuing bank to the
merchant.
18
Here, the merchant will send authorized transactions to their payment processor who
sends this information to the card association, who in turn sends this information to the issuing bank.
19
The issuing bank then charges the cardholder for the amount of the transaction.
20
At this time the
issuing bank transfers the transaction amount to the merchant bank, minus the interchange fee.
21
Finally, the merchant bank deposits the transaction amount (minus interchange fees and other service
fees) into the merchant’s account.
22
10
FIS Global, How Credit Card Processing Works, https://www.fisglobal.com/en/insights/merchant-solutions-
worldpay/article/how-credit-card-processing-works (last visited Mar. 7, 2023).
11
Id.
12
Id.
13
Id.
14
Card associations are also referred to as card networks. Examples of card associations include Visa, Mastercard, and
Discover.
15
Id.
16
Id.
17
This process plays out in full when a debit or credit card is either accepted or rejected at a payment terminal.
18
FIS Global, How Credit Card Processing Works, https://www.fisglobal.com/en/insights/merchant-solutions-
worldpay/article/how-credit-card-processing-works (last visited Mar. 7, 2023).
19
Id.
20
Id.
21
Id.
22
Id. STORAGE NAME: h0677b.COM PAGE: 4
DATE: 4/12/2023
In a debit or credit card transaction, a merchant will pay a portion of their sales to the various parties
that facilitate the use of the card. This payment is known as a merchant discount fee and is made of
three parts; the interchange fee, the acquirer fee, and the network processing fee.
23
The:
Interchange fee is paid to the issuing bank of the card in the transaction,
Acquirer fee is paid to the merchant’s bank, and
Network processing fee is paid to the card association.
24
The interchange fee is charged against the merchant bank by the issuing bank, but the merchant bank
will typically pass this cost onto the merchant.
25
The default interchange fee amount is set by the card
association,
26
but issuing and merchant banks can negotiate rates that differ from the default amount.
27
The interchange fee is typically a percentage of the underlying transaction amount, a flat fee, or a
combination of both.
28
Typically, interchange fees will vary from 1-3% of the total transaction amount.
29
Interchange fees cover the cost and risks that issuing banks face in facilitating the transaction as well
as funding the issuing bank’s cardholder reward programs.
30
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. An
amendment to this act, the Durbin Amendment, was adopted which mandated the Federal Reserve
Board of Governors (the Board) to reduce debit card interchange fees.
31
Following this mandate the
Board issued Regulation II (Debit Card Interchange Fees and Routing) which established a cap on the
debit card interchange fees certain financial institutions can charge a merchant bank.
32
Regulation II
limited the debit card interchange fee for these financial institutions to a base fee of $0.21, per
transaction, to cover the issuer’s processing cost, 0.05% of the transaction cost as a fee to cover fraud
losses, as well as a $0.01 fee, per transaction, to cover fraud prevention costs.
33
On average, this
regulation cut the debit card interchange fee rate in half.
34
While the Durbin Amendment reduced the interchange fee rate it is unclear what the overall effect was
on merchants.
35
An unintended effect of this bill was that small value transactions, that had been
charged a reduced rate in order to incentivize debit card adoption amongst merchants, now had their
rates raised to the maximum amount allowed to offset the amount lost due to reduced fees on large
value transactions.
36
This led to interchange fee cost increasing for merchants with small value
transactions such as the fast food and delivery service industry.
37
Generally, it is unclear whether the
Durbin Amendment reduced debit card interchange fee costs on merchants in more than just a limited
manner.
38
23
Electronic Payments Coalition, Overview of Interchange and its Value,
https://electronicpaymentscoalition.org/resources/overview-of-interchange-and-its-value/ (last visited Mar. 7, 2023).
24
Id.
25
Testimony from Sarah Bloom Raskin, Governor, Board of Governors of the Federal Reserve System, Testimony
regarding Interchange fees from Feb. 17, 2011,
https://www.federalreserve.gov/newsevents/testimony/raskin20110217a.htm (last visited Mar. 7, 2023).
26
Id.
27
Electronic Payments Coalition, Overview of Interchange and its Value,
https://electronicpaymentscoalition.org/resources/overview-of-interchange-and-its-value/ (last visited Mar. 7, 2023).
28
Julia Kagan, Interchange Rate: Definition, calculation Factors, Examples,
https://www.investopedia.com/terms/i/interchange-
rate.asp#:~:text=Interchange%20rates%20are%20set%20by%20credit%20card%20companies%20such%20as,might%20
set%20their%20rates%20annually. (last visited Mar. 7, 2023).
29
Id.
30
Payment Depot, A Practical Guide to Understanding Interchange Fees, https://paymentdepot.com/blog/interchange-
fees/ (last visited Mar. 7, 2023).
31
Renee Haltom and Zhu Wang, Did the Durbin Amendment Reduce Merchant Costs? Evidence from Survey Results,
Federal Reserve Bank of Richmond, Dec. 2015, at 1.
32
Id. This restriction applies to financial institutions with more than $10 billion in assets.
33
Id. at 2.
34
Id.
35
Id.
36
Id.
37
Id. at 3.
38
Id. at 2. STORAGE NAME: h0677b.COM PAGE: 5
DATE: 4/12/2023
Effect of the Bill
The bill prohibits payment card networks from charging interchange fees on tips and fees on taxes
levied under s. 125.0104 and Chapter 212, F.S.
39
The payment card network must deduct the applicable tip and tax amount from the calculation of the
interchange fee or rebate the amount attributable to the tip and tax amount. The deduction or rebate
must occur at the time of the settlement when the merchant submits the relevant tip and tax information
at the time of sale. If the merchant is unable to transmit the relevant tip and tax information at the time
of sale, the bill provides a merchant 180 days after the time of sale to submit tip amounts and proof of
tax amounts to the payment card network for the rebate. The payment card network must rebate the
amount of interchange fee attributable to the tip and tax amount to the merchant or credit the
merchant’s settlement account within 30 days of the merchant submitting the proof of the tip and tax
amount.
The bill creates a civil penalty of up to $1,000, per violation, for violations of the bill’s requirements. In
addition, the payment card network must refund the portion of the interchange fee derived from the tip
and tax portion of the electronic payment transaction.
The bill also prohibits entities that facilitate or process an electronic payment transaction from utilizing
or exchanging the information collected except to facilitate the electronic payment transaction or as
required by law. Violation of this provision will constitute a violation of the Florida Deceptive and Unfair
Trade Practices Act and is subject to civil actions by the enforcing authority under the Act.
40
The bill provides an effective date of October 1, 2023.
B. SECTION DIRECTORY:
Section 1: Creates s. 501.0119, F.S., relating to restrictions on electronic payment transactions.
Section 2: Provides an effective date of October 1, 2023.
II. FISCAL ANALYSIS & ECONOMIC IMPACT STATEMENT
A. FISCAL IMPACT ON STATE GOVERNMENT:
1. Revenues:
None.
2. Expenditures:
The bill has an indeterminate, negative fiscal impact on DLA for possible enforcement of the bill’s
requirements.
B. FISCAL IMPACT ON LOCAL GOVERNMENTS:
1. Revenues:
None.
2. Expenditures:
None.
39
Chapter 212, F.S., establishes the tax on sales, use, and other transactions, while s. 125.0104, F.S., establishes the
tourist development tax.
40
This does not include the private right of action otherwise authorized by FDUPTA. STORAGE NAME: h0677b.COM PAGE: 6
DATE: 4/12/2023
C. DIRECT ECONOMIC IMPACT ON PRIVATE SECTOR:
The bill may require the implementation of new point of sale hardware and software and transaction
processing software by the various participants in the transaction process to implement the bills
requirements.
D. FISCAL COMMENTS:
State and local government, when making purchases or processing payments using credit or debit
cards will be impacted in the same fashion as the general public.
III. COMMENTS
A. CONSTITUTIONAL ISSUES:
1. Applicability of Municipality/County Mandates Provision:
Not Applicable. This bill does not appear to require counties or municipalities to spend
funds or take action requiring the expenditures of funds; reduce the authority that
counties or municipalities have to raise revenues in the aggregate; or reduce the
percentage of state tax shared with counties or municipalities.
2. Other:
None.
B. RULE-MAKING AUTHORITY:
None.
C. DRAFTING ISSUES OR OTHER COMMENTS:
None.
IV. AMENDMENTS/COMMITTEE SUBSTITUTE CHANGES
On March 14, 2023, the Insurance & Banking Subcommittee considered the bill, adopted an amendment,
and reported the bill favorably as a committee substitute. The amendment:
Replaced the term “debit card or credit card transaction” with “electronic payment transaction”.
Clarified which tax types are subject to the bill’s provisions. Accordingly, an interchange fee could
not be charged on state sales tax and local tourist development tax, rather than state sales tax and
any county tax under ch. 125, F.S.
Established that if the merchant is unable to transmit tax amounts at the time of sale, the merchant
has 180 days to submit proof of tax amounts to the payment card network to access a rebate for the
interchange fees on taxes.
Clarified that the rebate or credit must be settled within 30 days of the payment card network
receiving proof of the tax amount when it is not captured at the point of sale.
Changed the effective date from July 1, 2023, to October 1, 2023.
On April 10, 2023, the Commerce Committee considered a proposed committee substitute and reported
the bill favorably as a committee substitute. The proposed committee substitute made the following
changes to the bill:
Changed the title of the bill to “Electronic Payment Transactions” because of the data use limitation
added to the bill.
Added “tips” to the limitation on application of interchange fees.
Added an express statement that a payment processor network will not be liable for the accuracy of
the tax or tip data reported by the merchant. STORAGE NAME: h0677b.COM PAGE: 7
DATE: 4/12/2023
Created a prohibition on the use of electronic payment transaction except to facilitate or process the
electronic payment transaction with violations subject to Attorney General or State Attorney
enforcement under Florida Deceptive and Unfair Trade Practices Act (no private enforcement).
The bill analysis is drafted to the committee substitute as passed by the Commerce Committee.