Consumers are about to pay the price for Illinois’ swipe fee law. The state’s controversial Interchange Fee Prohibition Act (IFPA) aims to reduce costs, but will instead shift the costs to consumers, resulting in broader market distortions.
The Illinois 2024 Interchange Fee Prohibition Act (IFPA), passed as part of a large budget bill, aims to limit the collection of interchange fees to the core purchase value by separating taxes and tips from the total cost of a transaction. But banking groups stalled the implementation through legal challenges, sending it to a U.S. District Court over concerns of preemption. Passing the legal challenges is not the only hurdle. If the bill goes into effect, businesses will need to update their processes or systems to comply.
Currently, an interchange fee (swipe fee) is charged on the total transaction cost when a credit card is used, and funds rewards and security costs. One way to adhere to this change would be for businesses to update their point-of-sale (POS) system to separate tax and tips from the base transactions price, a costly option. Alternatively, the merchant could submit post-transaction data or run the credit card twice at checkout: once for the product and once for the tax and tips. No matter the process, there will be a compliance cost that merchants will have to pay to make sure they are abiding by the new regulation.
Leah Locke is a Policy Analyst with the American Consumer Institute, a nonprofit education and research organization. Follow Leah on X @leahmlocke