Illinois Banking and Credit Industry Moves to Quash Law Prohibiting Card Swipe Fees
Banking and credit trade groups asked a Chicago federal judge late Monday to permanently overturn a law which would prohibit banks from collecting “swipe fees” on tax and tip portions of credit and debit card payment transactions. The Interchange Fee Prohibition Act, which was approved as part of Governor J.B. Pritzker’s 2024 budget legislation, stemmed from heavy litigation between retailers and the banking industry surrounding the inclusion of fees on sales tax, excise tax, and gratuity in consumer credit and debit card transactions with Illinois merchants.
Retailers argue that the law, the first of its kind, could save them millions of dollars in fees paid for taxes and tips which they do not get to keep. “Both sales tax and tips are not to the employer,” said Rob Karr, President and CEO of the Illinois Retail Merchants Association, “They are add-ons, if you will.” Doug Kantor, general counsel for the National Association of Convenience Stores, called the practice of collecting interchange fees “clearly unjust,” arguing that “credit card companies, unseen by almost anyone, take away the sales tax dollars that people give to their local stores before the stores can give it to the state, so those retailers have to dive into their own pockets to make up for the tax shortfall.”
Trade groups representing banks and credit unions, however, vehemently disagree. “This is just simply a money grab that has no public policy, no consumer benefit and could actually harm consumers and small businesses,” said Ben Jackson, executive vice president of the Illinois Bankers Association, a co-plaintiff in the action seeking to quash the law. The IBA, alongside co-plaintiffs like the Illinois Credit Union League and the American Bankers Association, from the outset have argued the law would place a disproportionate financial burden on banks, needlessly complicate transactions, and expose banking and credit groups to massive, $1,000-per-violation liability.
In December, U.S District Judge Virginia M. Kendall granted a preliminary injunction halting the law’s enforcement against national banks and savings associations, finding the law likely violated their rights under the National Banking Act (“NBA”). In February, Judge Kendall refused to extend this injunction to cover credit unions and state-chartered banks.
Moving for summary judgement, banking plaintiffs urged Judge Kendall to reconsider whether national credit unions are similarly protected under the Federal Credit Union Act, as national banks are with the NBA, and reargued that the Constitution’s dormant Commerce Clause prevented Illinois from preferencing in-state competitors and required state and federal institutions to be afforded the same level of protection.
On that same point, Plaintiffs concluded that “Illinois may not use the regulation of other entities to indirectly accomplish what it could not do directly: forbid the exercise of federally guaranteed powers”.