From State Senator Don DeWitte:
Separating Fact from Fiction in the Credit Card Swiping Fee Law
| There has been a great deal of confusion surrounding a new Illinois law known as the Interchange Fee Prohibition Act, which was included in the 2024 Revenue Omnibus bill (HB 4951 / Public Act 103-0592). Personally, I am disappointed that the Pritzker Administration pushed this measure through without providing clear guidance on exactly how the change in policy would be implemented by payment processors and credit card companies. Because my office is hearing from a lot of people who have seen the ads on TV about the issue, here is an explanation of this new law: What the law does: The law prohibits credit card companies and payment processors from charging interchange fees (the fee businesses charge when you use a credit or debit card as opposed to cash) on the portion of a transaction that represents sales tax or gratuity (tips). In simple terms, businesses would no longer pay credit card processing fees on taxes or tips; the processing fee would only apply to the base cost of a purchase. Why it was brought forward: This measure was part of a broader legislative agreement involving the Illinois Retail Merchants Association (IRMA). It was intended to provide some financial relief to retailers after changes were made to limit how much sales tax revenue they can retain for administrative costs. When it takes effect: The law is currently scheduled to go into effect on July 1, 2026, after being delayed by the General Assembly last year. Why there is confusion: Illinois is the first and only state to pass a law like this. Payment processors and credit card companies have said their current systems are not set up to separate taxes and tips from the rest of a transaction. As a result, some have warned of potential disruptions, which has led to recent advertisements suggesting credit cards may not be usable for tips or certain transactions. However, many others argue that these systems can be easily updated to avoid any disruptions. Impact on businesses:Businesses, especially restaurants and service providers, could save money by not paying fees on taxes and tips.However, they may need updated payment systems to comply with the law, depending on how processors implement it.Impact on customers (especially in the service industry):Customers should still be able to use credit cards as they do today.However, there is uncertainty about whether some businesses or payment processors might temporarily change how they handle tips or taxes on card transactions if systems are not updated by the law’s effective date of July 1, 2026. Legal status: A federal court has upheld the law, and while it is currently being appealed, there is no court order preventing it from taking effect. What’s next: The General Assembly could still revisit the law before its effective date, but no final decisions have been made. Click here to access a short FAQ. |
