Military Financial Institution Sounds Alarm Over Electronic Fee Legislation

Financial institutions across the country are weighing proposed legislation in multiple states and territories that would exclude taxes and gratuities from interchange fees on electronic transactions. In Puerto Rico, House Bill 1216 has drawn the attention of the military-focused Defense Credit Union Council, which sent a letter to Puerto Rican legislators expressing concern.

“For military families, financial stability is not a side issue; it is part of mission readiness,” said DCUC President, CEO and Retired USAF Colonel Anthony Hernandez, in a statement obtained by Military.com. “Policies that create uncertainty in the payments system or weaken the credit unions serving military members directly impact readiness, resilience, and household stability.”

At issue are the back-office fees that merchants pay during electronic transactions. Currently, most merchants charge a fee when a consumer pays by credit or debit card to cover the subtotal of the sale — plus gratuities or state or local sales taxes. The fees typically range between 1% and 3% of the total transaction value.

Introduced in April 2026, H1216 is a bipartisan measure currently in committee and is designed to lower consumer costs by prohibiting electronic payment processing fees or interchange fees from being charged on the tax and tip portions of transactions. It forces merchants and payment processors to calculate fees only on the base price of goods, potentially reducing merchant operating costs.

In the DCUC letter sent to Puerto Rican House lawmakers, several concerns were outlined, especially with regard to potential payment disruptions or hidden costs impacting military members and their families who use credit unions for banking.

“For defense credit unions, these disruptions carry an additional layer of concern: financial readiness for service members,” wrote Jason Stverak, DCUC’S Chief Advocacy Officer, in the letter reviewed by Military.com. “Reliable, predictable access to electronic payments is essential for military families, especially those stationed abroad or in transition. Any policy that introduces friction or uncertainty into that system directly or impacts mission readiness and household financial stability.”

Fee Change Benefit Versus Negative Impacts

Federal law allows national banks to charge these fees. However, critics, including the DCUC and many banking associations, argue that excluding these amounts will force higher overall card fees and reduce rewards. Supporters believe it protects merchants from the burden of paying extra interchange fees on sales taxes and gratuities.

“While well-intentioned, this approach introduces a fundamentally unworkable framework that would

create significant operational challenges, increase compliance burdens, and ultimately harm the very consumers

and small businesses it seeks to protect,” wrote Stverak.

Of particular concern is the military consumer, who may live on a fixed salary and limited funds, versus the benefit to businesses, especially large ones that can better absorb small fee changes.

“The proposal risks shifting costs rather than eliminating them,” Stverak wrote in his letter. “Removing interchange on portions of transactions does not eliminate these costs — it redistributes them. In practice, this could lead to higher fees, reduced services, or diminished access to affordable credit, particularly for underserved communities.”

Stverak’s letter goes into great detail explaining how the legislation would likely benefit large retailers disproportionately.

“The largest merchants are best positioned to absorb or capitalize on such changes, while smaller merchants face operational complexity and consumers face confusion at the point of sale,” he wrote while noting the direct impact on those who use credit unions for their banking needs. “Credit unions lack the scale and diversified revenue streams of large financial institutions, making them more vulnerable to abrupt policy shifts.

Military Members Disproportionately Affected

Another concern for members of the military is the requirement that they be financially responsible and transparent, especially when they often face major household relocation orders. If their banking needs and protocols change, resulting in a financial burden, the fallout could be serious.

“DOD policy expects service members to pay their just debts, and official clearance guidance warns that failure to live within one’s means or satisfy obligations can reflect poor judgment,” wrote Stverak in his letter. “During moves, deployments, and reimbursement delays, even modest new frictions in payment access, fraud-response capacity, or account terms can compound into readiness, hardship, and potential clearance problems.”

Stverak concludes his letter by respectfully opposing Puerto Rico’s House Bill 1216, while leaving the door open for dialogue and cooperation on a payment system that works for all.

“We welcome the opportunity to engage with you and your staff to discuss these concerns in greater detail and to work collaboratively on policies that support consumers while preserving a secure, efficient, and equitable payments system,” Stverak wrote.

According to its mission statement, the Defense Credit Union Council is considered a trusted resource that represents the interests of credit unions by coordinating policy, procedures, legislative initiatives, and regulatory matters impacting more than 143 million members. Organized in 1963, the DCUC advocates for credit unions on military bases and others who serve in communities across America.

Several U.S. jurisdictions have started reassessing interchange fees. In 2024, Illinois approved the Interchange Fee Prohibition Act to become the first jurisdiction to ban the charging of interchange fees on the tax portion of electronic transactions.