Dive Brief:
- A federal judge on Tuesday upheld the core of Illinois’ Interchange Fee Prohibition Act, a 2024 law which prevents payment processes and financial institutions from charging interchange fees on tips or state and local taxes.
- Payment processors had challenged the state law, arguing it would “would upend the intricate and carefully calibrated global systems for debit and credit card purchases,” according to the complaint.
- Sean Kennedy, executive vice president for public affairs at the National Restaurant Association, called the ruling “a meaningful win” for Illinois restaurants that would reduce the burden of credit card swipe fees.
Dive Insight:
Reducing or limiting credit card swipe fees has been a political goal of the NRA for years. Given Illinois' law inspired copycat legislation in a large number of states, the court’s decision to uphold the core of the legislation will likely invigorate other regulatory efforts to minimize businesses' costs associated with payment processing.
“It lays a clear legal path for other states to follow Illinois’ lead and address credit card processing fees—one of the highest and fastest growing costs facing restaurant owners today,” Kennedy said in a press release. “This decision shows that state legislatures can take meaningful action to rein in unfair swipe fees to support local businesses.”
Banking associations took issue with the ruling, which was penned by Judge Viriginia Kendall of the Northern District of Illinois, and pledged to appeal it, Payments Dive reported.
The law requires merchants to identify which portions of a transaction are tips and taxes in the information it provides to payment processors. Restaurants and other merchants will not be “assessed processing fees on money they collect on behalf of the state or pass through to employees” starting July 1, the NRA said.
The trade association backs a federal bill — the Credit Card Competition Act — to limit swipe fees and alter the competitive structure of the credit card processing market. The NRA claims that legislation would save merchants and consumers up to $17 billion.
