A federal judge earlier this year upheld a historic Illinois law that takes aim at one of the sneakiest — and most burdensome — costs baked into everyday purchases. The law prevents the nation’s largest banks and credit card networks from charging processing fees on sales taxes and the tips portions of a transaction.
It’s a major win for Illinois retailers and consumers who for too long have been squeezed by the very institutions that handle their payments. But the fight is far from over.
The credit card industry continues to throw false claims at the wall, hoping everyone gets fooled. Now, the Office of the Comptroller of the Currency, an independent bureau of the U.S. Department of the Treasury, is injecting additional legal uncertainty into the situation by issuing an order to exempt national banks.
As the case maneuvers through the courts, no one should be swayed by these scare tactics.
Every time a customer uses a credit card to make a purchase, the card’s processing network and issuing bank charge what’s called a swipe fee, typically between 2% and 4% of the total ring-up price. It doesn’t matter if it’s the latest bestseller, a caffeinated beverage or even a new pair of sneakers. These fees hit every retailer the same.
Instead of limiting the application of swipe fees to the price of goods or services, however, credit card giants extend them to taxes and tips as well. That distinction matters. Why? Because that means a business is on the hook to pay fees on both the sales tax retailers collect for state and local governments and the gratuities that go entirely to staff.
In 2024, Illinois lawmakers recognized this unfairness and passed the Interchange Fee Prohibition Act. The law ensures that swipe fees apply only to actual sales — not to tax obligations or tips. The results are straightforward. Lower costs for businesses and hardworking Illinois families.
Rather than accepting reasonable reform, major banks responded with a familiar playbook: wild claims of chaos hoping lawmakers and judges would be confused. On closer inspection, every one of their claims falls apart.
For starters, major payment networks argue Illinois’ law will undermine rewards programs and transaction security. It’s a familiar refrain from Visa and Mastercard, which make the same argument any time reforms are proposed. Yet rewards have never been as plentiful or generous.
If rewards programs change, competitors such as NYCE, Pulse and Shazam are well positioned to step in. That’s how the free market is intended to function.
Another false claim is that merchants would have to split transactions — forcing customers to pay for taxes, tips and the underlying purchase separately or with cash. That’s not how modern payments work, and it’s not what the law requires. Consumers will continue to swipe their credit or debit card once, just as they always have. The only change is behind the scenes, where fees would be applied to a different line in the transaction.
Payment networks already adapt to a patchwork of local tax laws and regulations both in the United States and around the world. Visa’s own operating documents admit this fact.
As legal challenges against Illinois’ Interchange Fee Prohibition Act continue, courts should recognize these claims for what they are — an effort to preserve an uncompetitive and nontransparent practice that quietly siphons billions from businesses and consumers. The payments system won’t collapse because banks can no longer take a cut of taxes and tips.
But for small businesses and families across Illinois, the relief will be real.
Rob Karr is president and CEO of the Illinois Retail Merchants Association.
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