SPRINGFIELD – Three years after Illinois lawmakers passed a bill ending “swipe fees” on taxes and tips, the state will be delaying implementing the bill another year.
Senate Bill 3645 further delays the implementation of the Interchange Fee Prohibition Act, which was slated to take effect on July first after opponents of the bill lost in court last year.
The bill will now take effect in July of 2027.
The bill dates back to 2023 and will require restaurants, vendors, any business which can receive tips and taxes to pay interchange fees on the pre-tax amount of purchases, with a new state cap on what businesses collect on sales tax.
As defined in the bill, an interchange fee is a charge or fee established by a card network for the purpose of compensating the bank for its involvement in an electronic transaction. The fee is levied as a way to protect businesses at the risk involved for using credit, compensation for the bank and maintenance to continue updating and protecting cards.
Merchants operating in Illinois currently have to pay a percentage ranging from one to three percent of the transaction as an interchange fee, including non-revenue generating tip and tax.
The idea is to give relief to small business owners and tipped workforce in the state.
If a bank or card issuer is found to violate the new bill, the fine is steep: processors will be subject to a civil penalty of $1,000 per electronic payment transaction and must refund the merchant the interchange fee calculated on the tax or gratuity amount relative to the electronic payment transaction.
Opponents and proponents
Opponents of the bill like the Electronic Payments Coalition of banks, credit unions and card companies have been very vocal, posting up outside the Illinois Statehouse during session petitioning to repeal the law that could cause “credit card chaos.”
The EPC cites that banks and other financial institutions cannot meet the requirements currently with the global payment systems, since the technology used when a customer swipes a card can’t break down the total cost by tax, tip and total.
An overhaul of the technology used with every swipe of a card would require new systems, and new tools for small business owners.
Proponents of the bill, however, say credit card companies already have the informational capabilities and are pushing back against this first in the nation type of legislature, hard.
The Illinois Retail Merchants Association in February of this year claimed a victory under their belt as United States District Court Judge Virginia Kendall in northern Illinois held up in court the swipe fees law.
The IRMA applauded the ruling as a positive step forward back in February, and released a statement on June 1 after the vote to delay swipe changes again.
“For the second year in a row, Illinois lawmakers chose to protect the bottom line of big banks, credit card companies and payment processors over ensuring meaningful financial relief for consumers, neighborhood retailers, restaurants and bars,” IRMA CEO Rob Karr said. “At a time when lawmakers claim to be focused on improving affordability and supporting community businesses, this action stands in sharp contrast to their words.”
Karr said the fight against onerous swipe fees is not over and the IRMA will remain hopeful the courts will ultimately uphold the vital relief package.
The Merchants Payments Coalition echoed IRMA, and estimates the wait to implement will elevate costs in Illinois by $500 million over the next year above what they would have been.
Out of state impact
With Illinois still being the first in the nation to push forward this law, similar legislation is sitting on Colorado Gov. Jared Polis desk to ban swipe fees on sales tax.
As the states move forward, Congress is considering the Credit Card Competition Act to address swipe fees overall rather than just those on sales tax and tips. President Donald Trump endorsed the CCCA in January, saying it is needed “to stop the out of control Swipe Fee ripoff.”
Claire Grant writes about business, growth and development and other news topics for The State Journal-Register. She can be reached at CLGrant@usatodayco.com; and on X (Formerly known as Twitter): @Claire_Granted
This article originally appeared on State Journal-Register: Illinois delays controversial ‘swipe fee’ law
Reporting by Claire Grant, Springfield State Journal-Register / State Journal-Register
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