Colorado’s Firearm Retailer “Merchant Code” Law Faces New Federal Challenge

The U.S. House of Representatives has passed federal legislation that would dismantle Colorado’s controversial requirement that firearm retailers – and their customers by proxy – be identified through a special credit card merchant code.

On July 14, the House approved H.R. 1181, the Protecting Privacy in Purchases Act, by a vote of 221–201. The bill would prohibit banks, credit card networks and payment processors from requiring or assigning a merchant category code that specifically identifies firearm and ammunition retailers.

For Colorado gun owners, this is not an abstract national debate.

Colorado is one of the states that has already mandated the very tracking system the federal bill is designed to stop.

Colorado Required the Gun Store Code

In 2024, Colorado lawmakers passed Senate Bill 24-066, requiring payment networks to make the firearm merchant category code available and requiring payment processors to assign it to qualifying firearm retailers.

The law was sponsored by Democratic State Senator Tom Sullivan and Democratic Representatives Meg Froelich and Javier Mabrey. Governor Jared Polis signed it on May 1, 2024.

Supporters described the code as a tool that could help financial institutions identify suspicious purchasing patterns. But the law created a separate financial classification for businesses engaged in the lawful sale of constitutionally protected products.

Under Colorado law, payment networks and processors that violate the mandate can face enforcement by the Colorado attorney general and civil penalties of up to $10,000 per violation.

H.R. 1181 directly challenges that system.

The federal legislation would prohibit payment card networks from requiring firearm retailers to use a code that identifies them as sellers of firearms, ammunition, firearm accessories or firearm components. It would also prohibit banks and other payment-processing entities from assigning the code.

Most importantly for Colorado, the bill expressly preempts any state or local law regulating the assignment, use or disclosure of firearm-specific merchant codes. If H.R. 1181 becomes law, Colorado’s mandate would be overridden by federal law.

The Federal Bill Creates an Enforcement Process

Unlike Colorado’s law, H.R. 1181 does not create monetary fines or criminal penalties for financial institutions that violate it.

Instead, it places enforcement authority with the United States attorney general.

Within 90 days of the bill becoming law, the attorney general would be required to establish a complaint process that individuals and firearm retailers could use to report alleged violations. The attorney general would then be required to investigate those complaints.

When a violation is found, the payment network, bank or processor would receive written notice and have 30 days to correct it.

If the company refused or failed to comply, the attorney general could file a lawsuit in federal court seeking an injunction to stop the prohibited conduct. The bill does not create a private right of action, meaning an individual gun owner or retailer could submit a complaint but could not independently sue under H.R. 1181.

The attorney general would also be required to submit annual reports to Congress detailing the number of investigations, their outcomes and the law’s effectiveness.

The structure is notable. Colorado threatens financial institutions with fines if they do not apply the firearm code. The federal bill would require them to remove it and gives the Department of Justice authority to take them to court if they refuse.

It Does Not Stop Ordinary Fraud Investigations

The bill does not prevent banks from investigating fraud, illegal activity, suspicious transactions, data breaches or cybersecurity risks.

Financial institutions could continue using the same tools they use throughout the rest of the economy to protect transaction integrity and comply with legitimate investigations.

What they could not do is place firearm retailers into a unique merchant category simply because they sell firearms, ammunition or related products.

The code does not ordinarily reveal the exact product purchased. It can, however, identify that a named customer conducted a transaction at a business categorized as a firearm retailer, along with the date and amount of that transaction.

That still creates the foundation for a searchable financial record of lawful gun-store customers.

Colorado’s Delegation Split Along Party Lines

Colorado’s congressional delegation divided along party lines.

Republican Representatives Lauren Boebert, Jeff Crank, Gabe Evans and Jeff Hurd voted for the legislation.

Democratic Representatives Diana DeGette, Joe Neguse, Jason Crow and Brittany Pettersen voted against it.

Boebert, Hurd and Evans were also listed as cosponsors of H.R. 1181.

What Happens Next

House passage does not make H.R. 1181 law.

The legislation must now move to the United States Senate, where it could be referred to committee, amended, brought directly to the floor or left without further action.

If the Senate passes the exact House version, the bill would go to the president for a signature or veto. If the Senate changes the legislation, the House would have to approve the revised version before it could reach the president.

Until both chambers act and the president signs the bill, Colorado’s firearm merchant-code mandate remains in effect.

But the House vote creates the clearest federal challenge yet to Colorado’s attempt to turn lawful firearm commerce into a specially identifiable category within the nation’s financial system.

Colorado lawmakers required banks and payment processors to single out firearm retailers. H.R. 1181 would tell them they cannot.

The next fight is in the Senate.