Fight over Illinois’ swipe fee law heats up as implementation deadline nears

A battle between financial institutions and retailers over a first-of-its-kind Illinois law that would prohibit credit card swipe fees from applying to taxes and tips is only heating up as the July 1 implementation deadline approaches.

On average, the fees amount to 2% of the total bill, experts agree.

The credit card lobby has been running television ads decrying the Interchange Fee Prohibition Act, complaining customers may have to swipe cards twice at retailers or restaurants or may not be able to use cards at all if it goes into effect.

Meanwhile, retailers argue it’s a simple software change and financial institutions are only fighting the law because it is cutting into their profits.

“They’re already doing all this today,” said Rob Karr, president of the Illinois Retail Merchants Association, which supports the Illinois law. “When you get a receipt, everything is itemized. They just need to apply the fee to subtotal instead of the grand total.”

He notes that currently swipe fees aren’t applied to purchases made by federal food assistance recipients such WIC and SNAP. The change would just require credit card companies to apply that policy to all purchases.

But opponents contend it’s not as simple as that.

“People that say that it’s a simple fix don’t know how the system works,” said Nick Simpson, spokesman for the Electronic Payments Coalition, the group behind the recent advertising blitz. “We have a global payment system, but what Illinois is saying is they want cards run in a completely different manner than that.”

Opponents argue it will cause “chaos” to bring Illinois businesses into compliance.

Simpson’s group is hoping to garner enough support to push Illinois legislators to repeal the law before it goes into effect in less than three months.

Arlington Heights Democratic state Sen. Mark Walker and Chicago Democratic state Rep. Margaret Croke have both filed bills seeking to repeal the law. Neither has made it out of committee so far.

There’s also an ongoing lawsuit filed by financial institutions aimed at stopping the 2024 law from going into effect. The initial court battle delayed implementation by a year, but a federal judge ultimately sided with the state and set up a process for compliance ahead of implementation.

Financial institutions are fighting that ruling, and the case is still waiting to be heard by a federal appeals court panel. Initial arguments are slated for May, Simpson said.

And despite the ongoing court case, the U.S. Treasury Department’s Office of the Comptroller of the Currency Wednesday announced plans to preempt the law from taking effect.

“This rushed announcement by the federal government to usurp Illinois law is unprecedented, prioritizing the bottom line of banks and credit card companies over meaningful relief for businesses and consumers,” Karr said of the federal government’s planned intervention.

Credit card companies defend swipe fees as a method to protect the companies from fraud. However, Karr argues the cost of credit card fraud is usually borne by retailers instead.

The swipe fee law was created to appease retailers when the state capped a tax discount for retailers as a means to fill a hole in the budget.