Nobody likes credit card fees — except the banks that issue credit cards — so politicians figure that they can please the voters at no cost and mandate limits to the fees that credit card companies can charge. But who is going to suffer for this “at no cost” bit of rule-making?
“Credit Cards” by Sean MacEntee is licensed under CC BY 2.0 
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Two years ago, Illinois passed crowd-pleasing restrictions on credit card interchange fees, which are better known as “swipe fees”. The ban on charging fees on processing payments for tips and taxes has now been delayed twice by skeptical federal judges and lawmakers worried that they’ve crafted a financial mess. These interventions may be saving the state from itself, as a new report points out that the law threatens to hurt consumers, small retailers, and local financial institutions.
Delayed Ban on Fees for Processing Taxes and Tips
Passed as part of a 2024 revenue bill, the Interchange Fee Prohibition Act (IFPA) defines “interchange fee” as “a fee established, charged, or received by a payment card network for the purpose of compensating the issuer for its involvement in an electronic payment transaction”. It adds: “An issuer, a payment card network, an acquirer bank, or a processor may not receive or charge a merchant any interchange fee on the tax amount or gratuity of an electronic payment transaction if the merchant informs the acquirer bank or its designee of the tax or gratuity amount as part of the authorization or settlement process for the electronic payment transaction”.
“Although merchants have long advocated for this change, banking and payment industry representatives argue that it imposes an undue hardship by forcing them to process certain components of transactions without compensation,” attorneys Thomas V. Panoff and Maxwell Earp-Thomas noted for the National Law Review at the time. They also commented that the law could force Illinois payments to be processed differently than those originating in the rest of the country and the world beyond.
The situation is now being fought in court and in public between advocates who argue the fees are hidden costs and opponents who say they’re an industry-standard means to cover the cost of business.
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Overall, Illinois lawmakers’ attempt to please the crowd by mandating lower costs looks poised to create a mess that could leave the state’s consumers, small banks, and retailers with higher costs and fewer choices if financial institutions leave to avoid headaches.
“To protect the integrity of the checkout experience and avoid driving financial providers from the Illinois market, the IFPA must be either repealed or overturned”, concludes Swedberg.
Credit card fees are undoubtedly burdensome for consumers and retailers. Ultimately the best way to avoid them is the traditional way: Use cash.
