Illinois Legislature Bans Swipe Fees on Taxes and Tips for Card Transactions

Illinois lawmakers recently passed the Interchange Fee Prohibition Act, the first legislation of its kind in the nation. Interchange fees are charged by banks and other card issuers to merchants when the merchants accept credit or debit card payments. Previously, the interchange fees charged to Illinois merchants resulted in merchants having to subsidize the portion of taxes and tips collected that were used to satisfy the interchange fee. This Act prohibits the assessment of interchange fees on the tax amount and gratuity amount of a credit or debit card transaction.

The Interchange Fee Prohibition Act faces opposition from some businesses, credit card companies, and banks. Opponents argue that the ban will complicate matters for consumers by potentially requiring credit or debit card users to enter into separate transactions for purchases, taxes, and tips. Meanwhile, the Illinois Retail Merchants Association disagrees, arguing that, while financial institutions and retailers will have to change their business practices, many small businesses will benefit from the lower fees, which will, ultimately, result in a fairer system.

The Illinois General Assembly will convene in the fall for the veto session, at which time it may amend the Act if needed. Before signing the Act into law, Governor Pritzker emphasized his willingness to revisit the ban throughout the rest of the year. The Act is currently slated to take effect on July 1, 2025.