Illinois’ Interchange Fee Prohibition Act remains tied up in court as industry experts warn that the law could create unnecessary complications for businesses. The law prohibits credit card issuers from charging interchange fees on portions of transactions, including taxes and gratuities. While supporters claim the transition will be easy, financial institutions and business advocates argue otherwise.
A judge recently ruled that financial institutions chartered outside of Illinois are not required to comply with the law, further complicating its enforcement. Banking groups have challenged the law, arguing it conflicts with federal banking regulations and forces costly upgrades to payment systems. The Illinois Bankers Association strongly opposes the law, calling it “fundamentally flawed.”
Supporters, including the Illinois Retail Merchants Association (IRMA), believe the law is fair and beneficial to businesses. IRMA President Rob Karr pointed to a poll indicating that 86% of voters believe it is unfair for banks and credit card companies to charge fees on sales taxes collected for the state and local governments.
However, Eric Cohen, CEO of Merchant Advocate, warned that the law would be particularly difficult for small businesses to implement. “When looking at the intricacies you have to do, I think business owners that understand it would probably say, ‘You guys are out of your mind, how do you want us to implement this?’” Cohen said.
The law requires banks and credit card companies to differentiate between transaction totals, taxes, and tips—a costly adjustment requiring new computer systems. Critics argue that the burden of compliance could lead to higher costs for businesses and consumers.
Illinois is the only state to pass such a law, making its legal battle a precedent-setting case. With the next hearing scheduled for March 6 in Chicago, industry experts predict a lengthy legal fight that could take years to resolve.
