Battle brewing over Illinois law banning swipe fees on sales taxes, tips

(The Center Square) – A controversial Illinois law affecting credit cards has prompted opinion polls, lawsuits and an array of opinions.

The Interchange Fee Prohibition Act was signed into law by Gov. J.B. Pritzker and is set to take effect in July 2025, making Illinois the first state to exempt taxes and tips from interchange fees.

Rob Karr, the president of the Illinois Retail Merchants Association, said their poll shows Illinoisans are in favor of the law.

“Eighty-six percent of voters agree that it is unfair for banks and credit card companies to charge businesses swipe fees on the sales taxes they collect for the state of Illinois and units of local government,” said Karr.

Karr said 82% of those polled said that it is unfair to workers and businesses to charge swipe fees on tips, and the notion that a card would have to be swiped twice is not true.

“Think about it, it’s laughable on its face,” said Karr. “When you go to a place that does tips, does your card get swiped twice, no. The server takes it, swipes it, brings it back, then you put in the amount.”

A new study released by Culloton + Bauer Luce analyzing the cost implications of an Illinois credit card law shows corporate mega-stores will be the largest beneficiaries of the law, which carves tax and tip out of credit card interchange. According to the report, 40 of the largest retailers will soak up nearly 40% of the estimated $118 million reduction in interchange.

Jose Garcia, president of Northwest Community Credit Union in Morton Grove, said he is concerned about the costs of this implementation on small businesses.

“I think the small businesses, the mom-and-pop stores, they will have to upgrade their equipment and I’m sure that the developers of the technology are not going to do it for free,” said Garcia.

Garcia adds that Illinois will be in a vulnerable position to be the guinea pig of a new system that has yet to be created.

Banking and credit union groups have filed a lawsuit against the state of Illinois, seeking to block the ban on applying interchange fees to sales taxes and tips. The lawsuit was filed by the Illinois Bankers Association, American Bankers Association, America’s Credit Unions, and the Illinois Credit Union League, alleging that Illinois is interfering with the federal government’s exclusive regulatory authority over various federally-chartered financial institutions.