SPRINGFIELD, Ill.–With Illinois set to become the first state to restrict debit and credit card interchange fees on taxes and tips, the Illinois CU league is warning the new processes and rules threaten to “complicate simple transactions from a consumer perspective, and lead to increased costs and burdens on small businesses across Illinois.”
Effective July 1, the Interchange Fee Prohibition Act will go into effect, meaning Illinois’ businesses for the first time will no longer have to pay processors the portion of the fee that comes from their out of pockets on tips and taxes.
The state caps the amount businesses can save though through not paying interchange on taxes to $1,000 per month, compared to the previous the 1.75% of total sales tax. If a card issuer or bank/CU processor violates the bill they are subject to a civil penalty of $1,000 per electronic payment transaction and must refund the merchant the interchange fee calculated on the tax or gratuity amount relative to the electronic payment transaction.
Lawsuit Filed
Financial institutions, including credit unions, have been fighting the legislation, but after it passed, credit unions joined with other groups in filing a lawsuit in August of 2024 to block the bill. The plaintiffs’ suit argued the bill would throw the current payment system into chaos and undermine the significant benefits that credit and debit cards as well as the banking institutions received.
In December of 2024 a District Court issued a preliminary injunction halting the end of the tax and tip swipe fees from federally chartered banks. A ruling in January said the interchange fees for taxes and tips will not be stopped for national banks. Some banks, credit unions and card companies still have to comply with the new law.
League Responds
In a statement published online and in other media, Libby Calderone, president and CEO for the Illinois Credit Union League, said credit unions have a shared mission to provide low-cost financial products and services, including payments, to members, and the Interchange The Fee Prohibition Act threatens that, Calderone said, adding it will “upend the convenience that consumers expect when they swipe a credit or debit card.”
Calderone said interchange revenue allows local financial institutions to facilitate access to affordable credit for consumers, and is a benefit to retailers and small business owners, as well.
Will Reduce Benefits
“This law threatens to complicate simple transactions from a consumer perspective, and lead to increased costs and burdens on small businesses across Illinois,” Calderone said. “What’s more, the law would reduce consumer benefits for using cards – such as airline miles, travel points and cash back benefits, and would strip essential funding that local financial institutions rely upon to provide credit at a low cost for everyday Illinoisians.
“Who benefits? The largest corporate megastores doing business in Illinois stand to generate increased profits as a result of this new law. The law provides no direct relief for consumers in Illinois and has no direct fiscal impact on the state.”
