OPIS
Bank and credit union trade groups are appealing a federal court ruling that upheld the first state law banning swipe fees on sales tax, excise tax and tips.
The Illinois Interchange Fee Prohibition Act passed in 2024 but was immediately challenged by the banking industry. After a favorable ruling Feb. 10 from the U.S. District Court for the Northern District of Illinois, the law is now set to take effect in July.
The Illinois ban could be copied in other states. More than a dozen states have considered similar legislation, according to the Merchants Payments Coalition, a nonprofit advocacy group that represents retailers on swipe fee issues. Gasoline stations and convenience stores are part of the coalition.
Payment card fees are the largest expense for convenience stores after labor, according to the National Association of Convenience Stores.
Banking industry trade groups said they would not "let the law stand." In the district court, they argued the National Banking Act preempts the Illinois law. But the court disagreed, saying that card networks, not banks, set the swipe
fees.
Banks and credit unions also have argued the Illinois law complicates transactions and could lead to disruptions in service.
"This decision results in a number of significant compliance challenges for credit unions across the country," said Amanda Smith, lawyer for America's Credit Unions, on the trade association's website. "Financial institutions of all sizes will have to track state and local sales taxes on purchases that take place in Illinois, plus excise taxes such as a gas tax that is built into the price of fuel, rather than charged separately."
Smith said interchange fees are the cost of doing business through a secure card network.
But Doug Kantor, a lawyer for the National Association of Convenience Stores, said in a recent statement that "it is simply unfair for merchants to pay swipe fees on tax and tip money that they must give to the state or employees."
On Feb. 13, the Illinois Bankers Association, American Bankers Association, America's Credit Unions, and Illinois Credit Union League filed a notice of appeal with the district court.
"The fight over IFPA and any similar proposal will continue," Smith said.
