Illinois Credit Card Law Battle Escalates as July Deadline Approaches
Banks and retailers clash over Illinois swipe fee ban as legal challenges mount
An advertisement about credit and debit cards in Illinois is getting significant airtime right now. The Electronic Payments Coalition is spending millions on an ad campaign to block the Illinois Interchange Fee Prohibition Act, which would ban swipe fees from being collected on sales tax or tips.
Unless Springfield fixes this mistake, your debit or credit card may not work to pay tips or sales tax starting July 1st, according to the advertisement that was launched by the Electronic Payments Coalition.
Retailers champion law, banks threaten chaos
The law was championed by the Illinois Retail Merchants Association. Rob Karr, president and CEO, believes the advertisement creates misinformation for consumers. He says retailers claim the law would save them hundreds of millions of dollars annually and that it is just a simple coding change.
Credit card companies charge a 1% to 3% fee on transactions, known as a swipe fee or interchange fee. They help fund fraud prevention and rewards programs. Illinois law would ban those fees from being collected on the sales tax or tipped portion of a transaction.
There is a reason why no other jurisdiction, no other city, state, country has ever even attempted this, said Richard Hunt, the executive chairman of the Electronic Payments Coalition. So, Illinois is about to become the land of chaos, come July, Hunt said.
Legal battle goes to Supreme Court possibility
The legislation has been tied up in court since it was passed in Springfield two years ago. Under a federal judge's ruling, it is set to go into effect in July. However, that decision is under appeal, and if the legal battle continues, the law's supporters believe it could end up decided by the U.S. Supreme Court.
The Interchange Fee Prohibition Act was passed in late 2024 and immediately faced a lawsuit from financial institutions including the Illinois Bankers Association and Illinois Credit Union League. They argued it would create an overly complex and burdensome payments system for debit and credit card purchases.
Judge upholds law but implementation uncertain
U.S. District Judge Virginia Kendall upheld the law, creating a tight timeframe for Illinois businesses to set up processes for compliance ahead of the July 1, 2026, deadline. Implementation of the law has already been pushed back by a year to allow time for the legal dispute to resolve.
In her ruling, Kendall acknowledged that it was a close case due to the lack of precedent in other states. She also acknowledged that the IFPA presents complicated compliance challenges but ultimately ruled that the law requires such compliance, even if it proves overwhelmingly arduous for financial institutions.
Banks argue system overhaul impossible
The Illinois Credit Union League said if the law is upheld, financial institutions would have to completely overhaul Illinois electronic payment system. Chief Legal Officer Ashley Sharp said customers may remember it took years to switch over to credit card chip technology.
That will require system upgrades. That will require a lot of investment in the infrastructure behind electronic payments that doesn't exist today, Sharp said. So again, it could lead to a significant cost for all parties to an electronic transaction, Sharp said.
Credit unions said compliance by July 1 will be impossible, and from the way the law is written, they believe they could face a $1,000 fine for each transaction found not in compliance, which is a risk they do not want to take.
Retailers say savings will help everyone
I would point out there is costs of compliance for retailers every day, Karr said. Because swipe fees are costly, Karr said the law would remove a big cost driver for businesses, and potentially for customers.
The Electronic Payments Coalition, a lobbying group representing major financial institutions and payment networks like Visa, Mastercard and American Express as well as credit unions and community banks, issued a statement calling on Illinois legislators to repeal the bill after the judge's ruling.
Study shows savings won't help small businesses equally
The coalition pointed to a study it published in late 2024, finding that 40 of the largest retailers will soak up nearly 40 percent of the estimated $118 million reduction in interchange. The top 10 largest retailers — Amazon, Walmart, Home Depot, Verizon, Apple, AT&T, Costco, CVS, Walgreen and Kroger — will receive 21.4 percent of the savings, according to the coalition.
The rest of the savings would be split amongst roughly 1.3 million small businesses in Illinois.
Small business concerns about implementation
Small business advocates including the Illinois State Black Chamber of Commerce have argued that the law will lead to higher costs and administrative headaches for business owners as they will need to purchase new software and equipment upgrades and devote more time to accounting. They also warn of increased fraud risks and privacy concerns for consumers.
Attorney general supports law
During oral arguments in the case, the attorney general's office argued in favor of IFPA and said the amount of interchange fees banks would be able to collect would only be reduced by about 9 to 10 percent.
Imagine you are making a 5 percent profit, which is a reasonable profit margin for a business, then suddenly 10 percent of that profit is taken away, said Charlotte Taylor, representing the Illinois Bankers Association. Now you are operating at a 5 percent loss, Taylor said.
Fight continues with appeal filed
The Illinois Bankers Association and Illinois Credit Union League announced after the ruling they would file an appeal in coming days. In light of this outcome, we renew our call for state lawmakers to repeal this flawed law before it can do any more harm to the Illinois economy, the plaintiffs that sued IFPA wrote in a joint statement.
The fight over IFPA and any similar proposal will continue, according to the banks and credit unions.