The cost of credit: Peoria restaurants pass swipe fees on to customers as costs rise

Carol Hopkins knows the last few years have been difficult for small, local restaurants.

As businesses struggle with staffing and rising operational costs, the Woodford County resident said she is “glad they’re able to stay open.”

Hopkins said she dines out about once a week and tries to support local establishments. When she and her husband planned to visit Brienzo’s in Peoria Heights, she noticed something she doesn’t typically see — a surcharge for using credit cards.

Credit card fees are not a new expense, but they are a growing one. Known as interchange or swipe fees, they are a cost that businesses incur each time a customer uses a card.

More restaurants are passing the cost directly on to customers in the form of surcharges or processing fees.

“I hate that we're in this boat. I hate it,” said MaryBeth Milburn, owner of MD’s Sports Bar & Grill in Peoria. “I would like to work (to) row my boat in another direction instead of dealing with credit card fees and charging a customer. It's like 10 years ago, this was unheard of, but now it's come to where it's just so massive.”

Swipe fees and rising costs

Sam Toia, Illinois Restaurant Association CEO and president, said after food and labor, the cost to process credit cards is “the third largest operating expense for most restaurants.”

Toia said these fees have a greater impact on small, local establishments — which have less power when it comes to negotiating costs.

Tina Kraft, owner of The Farmstead in Roanoke, echoed this sentiment. “For smaller restaurants, we're not able to negotiate with credit card companies,” Kraft said. “That's just not even an option through our POS (point of sale) system.”

Toia said processing credit and debit cards cost business owners more than $172 billion nationally last year.

Part of the challenge, Toia said, is “unchecked competition.” The Federal Reserve noted more than 80% of general-purpose credit cards in the U.S. were part of the Visa or Mastercard networks in 2019. The National Restaurant Association ’s website states that throughout the last decade, “U.S. swipe fees have more than doubled.”

At MD’s Sports Bar & Grill, Milburn said such fees once cost her around $800 or $900 a month. Now, she said they tend to fall between $1,200 and $1,800 each month.

And swipe fees are not the only expense restaurants are navigating. Milburn said food, labor and delivery costs are rising, as well.

“Everything just keeps going up, and up, and up, and then everybody wonders why businesses are going out of business,” Milburn said. “They can't keep adding on to their bottom line.”

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‘We can no longer absorb all those costs’

As profit margins shrink, Toia said small businesses have struggled to cover the cost of swipe fees. Various establishments in Peoria and beyond have opted to pass the expense on to the customer as a processing fee or surcharge. Other restaurants have implemented cash discounts.

Both Kraft and Milburn said they have noticed the added expense at more and more establishments. Kraft said she has come to expect it when she goes out.

After nearly seven years in business, MD’s added a 3% surcharge in February – which does not apply to debit or cash. The decision was difficult, but Milburn said she felt like there was no other choice.

“We have fought back and forth in our minds and in our hearts on what to do, and we can no longer absorb all those costs,” Milburn said.

The surcharge does not totally cover the fees, Milburn said, but it helps.

The Farmstead has included a 3% processing fee for credit cards since the restaurant opened in June 2023.

Kraft said raising menu prices to cover the fee would be unfair to those who pay with cash. She also said the goal is to keep prices as affordable as possible.

Hopkins, the Woodford County resident, has heard the latter argument but said restaurants have increased menu prices because of other factors, such as food costs.

“They may have raised their prices on their menu items, but then they're still going to put a surcharge on top of that,” Hopkins said. “And I know the cost of doing business isn’t cheap, so I do get why they do it. But I think we should have the option to pay by cash if you want and then avoid that.”

Despite the cards becoming more common, Milburn said “cash is king.” While Hopkins prefers to pay with debit, she said her husband often tries to use cash.

Some restaurants and businesses, however, no longer accept this form of payment.

Brienzo’s recently shifted to cashless operations. A business notice says the change was made “for the health and safety” of everyone involved.

A 3% surcharge is now applied to all checks to “offset rising costs,” according to the notice. The message said the added charge is done “in lieu of increased menu prices.”

“I get that, you know, it’s a big expense,” Hopkins said of credit card fees. “But to completely quit using cash? I don’t understand that. I mean, we probably won’t go there.”

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‘Communication is the key’

When it comes to implementing credit card surcharges, Toia said the IRA encourages transparency and added, “communication is the key to success.” He said customers are typically understanding if they know about the charge upfront.

This has been the experience for Kraft and Milburn, who have each posted signs about the added cost. Milburn said servers at MD’s also let customers know about the surcharge and other payment options.

“It's a tough pill to swallow that we have to do this,” Milburn said, “but like I said, our customer base is considerate, understanding and supportive, and that's appreciated.”

Even with the processing fee, however, Milburn and Kraft said most patrons stick with credit.

“I think it’s a convenience factor for them,” Kraft said.

Kraft has considered adding an ATM to The Farmstead, but said she is unsure whether doing so would be beneficial.

Customers have access to ATMs at MD’s. However, Milburn said guests may incur fees for withdrawing money.

“They’re just nickel and diming the customer continually,” Milburn said.

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‘Pushing back against swipe fees’

There are efforts on the state and national level to rein in interchange fees.

The Interchange Fee Prohibition Act recently passed in Illinois and will go into effect on July 1, 2025. It aims to eliminate interchange fees on tips and taxes for purchases made with both debit and credit cards. Such fees are currently applied to the total transaction.

“The Illinois state legislature took a major step forward in pushing back against the swipe fees that are charged by credit card companies — fees that are nonnegotiable for merchants and that big banks use to pad their already high profits," Senator Dick Durbin said in a press release regarding the act .

On June 2, the Illinois Bankers Association sent a letter to Gov. JB Pritzker that implored him to veto the act. The IBA wrote that 25 states have rejected similar proposals and said the “Interchange Fee Prohibition Act will make Illinois a global outlier in its treatment of payments, with significant consequences for Illinois consumers and businesses.”

The letter asserted the Interchange Fee Prohibition Act would impact security and would primarily benefit large retailers, rather than small businesses. Along with this, the IBA said the change will “slow down commerce in Illinois” by making the system more complex.

“Online merchants may have an even more disruptive experience, rendering many transactions impossible to complete for Illinois consumers,” the IBA wrote.

The Pennsylvania House introduced a similar bill — which would apply to taxes but not tips — on June 10, 2024.

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Would a federal law help or harm small businesses?

At the federal level, Durbin also sponsored the bipartisan and bicameral Credit Card Competition Act of 2023 .

A press release in June 2023 said the bill aims to “inject real competition into the credit card market” by requiring large banks to offer at least two network options for processing credit card transactions. This includes one option that is not part of the two largest networks — Visa and Mastercard.

“At a time when hard-working Americans and small business owners are struggling with higher costs of everyday essentials like gas and groceries, we should be doing everything we can to reduce prices — and we can start by reducing the cost of swipe fees,” Durbin said in a July 9 press release .

An additional document on the legislation names a variety of national organizations — including the National Restaurant Association — that support the bill. On regional and state levels, the summary said the bill has garnered the support of more than 200 associations. This includes the Illinois Restaurant Association.

“We would like to see more competition in this arena,” Toia said.

The Electronic Payments Coalition — a fervent opponent of the bill — shared a list of 177 organizations which oppose the measure in late 2023. Airlines, bankers associations, credit unions and groups such as the Small Business & Entrepreneurship Council and Americans for Prosperity were listed among the opponents.

A February news release by the EPC cited a study that noted most savings would go to businesses with at least $500 million in sales each year.

Richard Hunt, executive chairman of the EPC, said such regulations would not help everyday people or small businesses. Instead, he said the “government mandates are about little more than lining the pockets of the nation’s largest mega-stores.”

“Even worse than only helping big corporate retailers, like Target and Walmart, these new mandates would actually hurt mom-and-pop small businesses by restricting their access to credit and choking off the billions in rewards they reinvest in their businesses and employees,” Hunt said in the Feb. 5 press release .

Additional posts on the EPC website have argued cash is an expensive payment option for businesses, and the organization has taken a swipe at restaurants for " hidden fees " not reflected in menu prices.

On July 9, the EPC launched the “Guard Your Card” campaign to advocate against the Credit Card Competition Act of 2023. The campaign argues rewards programs would be negatively impacted and security could be harmed.

The Merchants Payments Coalition — made up of multiple business associations which support the bill — denies both claims. It argues increased competition “would lower costs and drive innovation.”

As the debate continues over what would benefit small businesses and consumers, local establishments must still navigate and balance costs. Milburn now tries to bring cash when she patronizes other businesses and said she has become “more conscientious” about the issue.

“If you can use cash, you're helping (businesses) out a lot and you're saving yourself 3%,” she said.

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This article originally appeared on Journal Star: The cost of credit: Peoria restaurants pass swipe fees on to customers as costs rise