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A coalition of national and statewide retail organizations are
challenging federal rules that stopped the state law banning
credit card processors from collecting fees on taxes and tips in
card transactions.
Illinois’ 2024 Interchange Fee Prohibition Act, commonly
referred to as the swipe fee, bans credit card processors from
charging processing fees on parts of a transaction that aren’t
going to the business conducting the sale, such as sales tax and
tips going directly to employees.
Rob Karr, president and CEO of the Illinois Retail Merchants
Association, explained the legal back and forth over the law’s
legality led to federal regulators determining that the Illinois
law was superseded by federal law, which he contested.
“The Office of the Comptroller of Currency has issued a
retroactive rule, claiming that the state law is preempted. The
problem with their approach is that the Congress never changed
the law. So this is a federal bureaucracy trying to rewrite
law,” Karr said.
While the removal of the processing fee is small on a
per-transaction basis – often only a few cents – the statewide
impact would mean the entire amount of tax paid by consumers
would actually go to the state.
Estimates project the ban would generate $200 million annually
for the state if it takes effect, though it’s been delayed twice
and is now scheduled for July 1.
Bankers and credit union groups challenged the law in federal
court, and the U.S. Office of the Comptroller of the Currency
moved in April to partially block the law.
According to Karr, card processing fees are one of the few
things that drive prices up that could be directly lowered to
make retail shopping more affordable.
“That helps retailers continue to try to keep prices under
control. Other things drive prices, most of the prices are
outside of the control of the retailer. But removing these types
of components help consumers save money,” Karr said. “They do
add up and they are 10 times the rates that the credit card
companies charge in Europe.”
Karr said they had no choice but to take their fight to federal
court, and he hopes the coalition can win the case so the law
can take effect next summer to capture more revenue for the
state without raising the rates taxpayers are already paying.
“They've spent $12 million plus trying to repeal the law. They
have convinced an alleged regulator to try to rewrite the law
retroactively. So, we have no choice but to go to the courts and
hopefully be successful in trying to control the costs for
everyone,” Karr said.
The lawsuit argues that between Visa and Mastercard, the two
largest card processing companies, over 80% of all transactions
occur within their network.
With both supporters and opponents of the law appealing court
decisions to the 7th U.S. Circuit Court of Appeals, arguments
from both sides are expected to be heard by February, according
to court records.
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