(The Center Square) – Businesses and banks are at odds over a pending Illinois law banning credit card fees when customers pay for taxes and tips.
Illinois Retail Merchants Association President and CEO Rob Karr said recent polling shows overwhelming public support for the Interchange Fee Prohibition Act. The law slated to take effect next July prohibits banks and credit card companies from charging swipe fees on the state and local sales tax and tip portion of a transaction when the consumer pays with a credit or debit card. Financial institutions can still impose fees on transactions using debit or credit cards for goods and services.
Karr spoke at a news conference in Springfield on Tuesday. He said the fees charged by banks and credit card companies are unfair.
“These fees are paid by merchants who have no choice but to pass them along to consumers, which the Justice Department said hits younger and lower-income consumers the hardest,” Karr said.
Karr disagreed with bankers’ assertions that the law will bring chaos or cause consumers to swipe cards twice.
“No, in fact, think about it. It’s laughable on its face. When you go to any place that does tips, does your card get swiped twice?” Karr asked.
Pamela Frazier, president and CEO of All in One Laundry Center and Services, said the new law means her business will no longer have to pay credit card companies’ fees on sales taxes and tips.
“That tangible savings will allow us to assist more of the customers in need. That includes hiring individuals from the community experiencing homelessness, returning citizens and underserved populations,” Frazier said.
Karr shared a poll that showed the vast majority of voters surveyed favor the prohibition of charging fees on tax and tip transactions.
Ben Jackson of the Illinois Bankers Association and Ashley Sharp of the Illinois Credit Union League provided The Center Square with a joint statement on Tuesday.
“Today’s poll and press conference from the retailers was nothing more than a smokescreen. The survey clearly failed to inform consumers that this law will cause chaos every time they use a credit or debit card, and no amount of spin from the retailers will change that,” the statement said. “Besides violating a host of federal laws as our legal complaint makes clear, this law does absolutely nothing for consumers. It doesn’t mean bigger tips for workers, or that workers get to keep more of their tips. In fact, it could incentivize people not to leave a tip at all.”
The bankers and credit union league statement also said the pending law does not raise a single dollar for the state of Illinois.
“It simply forces banks, credit unions, small businesses and everyone at the check-out counter to navigate a needlessly complex new system that rewards the state’s largest retail stores. No one else in the world has adopted this approach, and for good reason,” Jackson and Sharp stated.
The American Bankers Association, the Illinois Bankers Association, America’s Credit Unions and the Illinois Credit Union League filed a complaint in the U.S. District Court for the Northern District of Illinois last month. The plaintiffs are seeking an injunction to halt implementation of the new law while the court decides the case.
The groups said the law banning credit card fees on taxes and tips violates multiple federal statutes and would throw the modern and efficient payment system into chaos.
Despite the federal complaint, Karr remained optimistic about the case.
“We’re not going to prejudge. We think we’re on very solid ground with that. We’ll see what they do,” Karr said.
The Interchange Fee Prohibition Act is scheduled to take effect on July 1st, 2025.
