DOVER, Del.—In a battle similar to that taking place in another state but with less fanfare, a proposal to ban credit card processing fees on tips is drawing intense debate in Delaware, pitting small businesses against banks and payment networks, with opponents of the law reportedly spending more than $100,000 to fight it.
House Bill 315 would prohibit so-called interchange, or “swipe,” fees on gratuities—charges that typically range from about 1% to more than 3% of a transaction, NewsFromTheStates.com reported. Violations could carry penalties of $1,000 per transaction and require refunds of improperly charged fees.
The measure, sponsored by state Rep. Kim Williams, has gained broad bipartisan support, with more than half of Delaware’s General Assembly signed on, according to NewsFromTheStates.com. It has already advanced out of committee and is awaiting a full House vote.
Similar to Illinois Effort
The push follows a similar law in Illinois, as the CU Daily has been reporting, where a federal judge recently allowed restrictions on fees applied to taxes and tips to take effect, prompting other states to consider comparable legislation, the report said. America’s Credit Unions and the Illinois Credit Union League are among plaintiffs in litigation opposing the Illinois Interchange Fee Prohibition Act.
As the CU Daily reported here, with the Trump administration moving to block enforcement of Illinois’ landmark swipe-fee law against national banks, the Defense Credit Union Council has asked NCUA for clarification on whether federal law also protects credit unions from Illinois’ new interchange restrictions.
Advertising expressing opposition to the Illinois law has also appeared in that state.
Small Businesses Cite Rising Costs
In the First State, supporters, including the Delaware Restaurant Association, argue the bill would provide relief to businesses increasingly reliant on credit card payments. NewsFromTheStates.com reported that Delaware restaurants collectively pay an estimated $6 million annually in fees on tips, with the average full-service restaurant potentially saving about $6,700 per year under the proposal.
Restaurant owners testified that fees applied to tips—money they pass directly to workers—cut into already thin margins. Some described credit card processing costs as among their largest expenses, according to the report.
“A tip is not a transaction. It’s a thank you, and no part of that tip should go to a bank,” one industry advocate said, as cited by NewsFromTheStates.com.
Banks, Networks Push Back
Opponents, led by the Electronic Payments Coalition, argue the proposal would require major changes to how payment systems operate and could have unintended consequences, NewsFromTheStates.com reported.
The coalition has launched a lobbying and advertising campaign, spending more than $100,000 on digital ads and additional funds on media outreach and lobbying efforts, the report said.
Industry representatives contend current payment systems are not designed to separate tips from total transaction amounts, and changes could disrupt processing. They also warn that limiting fee revenue could affect fraud protection efforts, credit availability and rewards programs, according to NewsFromTheStates.com.
Reduced Earnings Cited
Some opponents have also argued that if payment networks stop processing tips via credit cards to avoid penalties, workers could see reduced earnings as fewer customers carry cash, the report said.
If enacted, the law would likely face legal challenges similar to those filed in Illinois, NewsFromTheStates.com reported, setting up a broader fight over how credit card fees are applied nationwide.
