Illinois retailers, bankers reignite battle over law banning swipe fees on sales tax, tips

SPRINGFIELD, Ill. (WAND) — The Illinois Retail Merchants Association says more than 70% of Illinois voters support banning swipe fees on tax and tips for credit card transactions. Although, banks and credit unions strongly oppose the change and argue it could hurt consumers.

Democratic lawmakers included the Interchange Fee Prohibition Act in the revenue package they passed in May for the Fiscal Year 2025 budget. Retailers have long fought to get rid of these fees.

"Credit card companies are still able to charge the interchange fee for the purchase price of the product or service," said Rob Karr, President and CEO of the Illinois Retail Merchants Association. "Retailers should not have to pay a fee on a tax they are collecting for the state and units of local government or on the tips consumers leave for team members."

IRMA recently conducted a poll with 800 voters to get their views on swipe fees. 86% of the voters agreed that it is unfair for banks and credit card companies to charge businesses swipe fees on sales tax. 82% said it is unfair to workers and businesses to charge swipe fees on tips.

"We did the numbers for last year," said Gordon Davis, co-founder of Whimsy Tea Company in Springfield. "We paid $5,000 in interchange fees. That $5,000 could be the difference between a business making it or losing it."

The Illinois Bankers Association said the legislation was passed quickly in the final days of session without input from the financial industry. Ben Jackson, IBA executive vice president of government relations, told WAND News Wednesday that the law will only benefit big box stores who have the resources to implement the changes. He also noted that customers may have to start paying sales tax with cash or check instead of cards.

"Twenty nine states have rejected this," Jackson said. "There's a few that are studying it right now and looking at its impact on consumers and businesses. This was done way too quickly in Illinois and without proper research of its impact on consumers and small businesses."

The Illinois Bankers Association and other financial groups filed a lawsuit in federal court to block the law from taking effect next summer.

State leaders are expected to respond to the lawsuit next week. Oral arguments are scheduled to begin October 30.

Karr said the idea that banning swipe fees would harm consumers is completely false. He argued that the new law will provide relief to Illinois families and retailers of all sizes.

"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 low-income consumers the hardest," Karr added.

Jackson and Ashley Sharp from the Illinois Credit Union League stressed the law violates a host of federal laws and "does absolutely nothing for consumers."

"It doesn't mean bigger tips for workers or that workers get to keep more of their tips," Jackson and Sharp said. "In fact, it could incentivize people not to tip at all. And the law doesn't 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."