What's Happening?
A federal judge has upheld Illinois' law prohibiting banks and card networks from charging swipe fees on sales tax, state excise taxes, and gratuities in credit and debit card transactions. This decision, made by U.S. District Judge Virginia M. Kendall, supports the Interchange Fee Prohibition Act, which was part of Illinois' 2024 state budget. The law aims to relieve retailers from paying fees on transaction amounts they do not retain as revenue. Despite opposition from banking groups, the court ruled that federal banking laws do not preempt the state law, although one provision regarding transaction data use was struck down.
Why It's Important?
The ruling is significant for retailers in Illinois, as it could reduce their credit card processing costs by eliminating
fees on non-revenue portions of transactions. This could provide financial relief, particularly for small businesses and restaurants, which often operate on thin margins. The decision also sets a precedent for other states considering similar legislation, potentially leading to broader reforms in how swipe fees are applied. However, the ruling poses challenges for banks and payment processors, who may face increased compliance costs and operational adjustments.
What's Next?
Banking groups have indicated plans to appeal the decision to the U.S. Court of Appeals for the Seventh Circuit. Meanwhile, other states, including Pennsylvania, North Carolina, and California, are considering similar legislation to exempt taxes and gratuities from swipe fees. The outcome of these efforts could influence national policy on interchange fees, especially as federal reforms remain stalled. Retailers and industry groups will likely continue advocating for changes to reduce transaction costs, while banks and card networks may seek to adapt their fee structures in response to evolving regulations.
