The measure -- supported by consumer groups and Visa, which controls an estimated 75 percent of the country's debit card market -- would have extended an existing state ban on credit card fees to debit cards, which have become increasingly popular, the San Francisco Chronicle reported.
"I am concerned that this bill will shift the burden of paying interchange fees from the holders of debit cards to all consumers regardless of payment type," Schwarzenegger said Wednesday in vetoing the bill.
"Instead of charging a customer who chooses to use a debit card, businesses would be forced to increase their prices to all customers, regardless of payment type, to cover the interchange fee," the Republican governor said. "The burden of paying these surcharges should fall on those who use debit cards and not on those who choose to pay with another form of payment."
Supporters of the bill argued it would prevent businesses from advertising one price and then hiking the cost at the register.
It was opposed by a number of business groups and small business owners who are subject to "swipe" fees charged by Visa and other payment networks every time someone uses a credit or debit card at their store, usually 1 percent to 2 percent of the purchase price, the Chronicle said.