Illinois Limits Interchange Fees

Illinois lawmakers have approved a state budget that would require taxes and tips to be excluded from debit and credit card interchange transactions.

The Interchange Fee Prohibition Act would ban the collection of interchange fees on sales taxes, excise taxes, and tips for transactions that would be subject to the state’s sales taxes.

The bill is scheduled to come into effect on July 1, 2025, and would be the first of its kind in the US.

The introduction of the bill aims to raise taxes to increase the state’s budget and limit the tax discount that retailers receive for collecting sales tax.

The bill caps the tax discount claimed by retailers at $1,000 per month, which is estimated to bring in approximately $101 million in revenue for the state.

Both chambers of the Illinois General Assembly approved the budget with a 65-45 vote and the state’s Governor Pritzker, has pledged to sign it into law. 

The bill follows the government’s recent proposal to lower the price cap on the debit interchange merchants pay to process debit card transactions.

The proposal faced criticism from a coalition led by the American Bankers Association due to the unintended negative consequences it would have on community financial institutions.

Illinois’ bill has faced similar backlash but was also praised by Illinois Senator Dick Durbin.

He said: “The Illinois state legislature took a major step forward in pushing back against the swipe fees that are charged by credit card companies—fees that are non-negotiable for merchants and that big banks use to pad their already high profits.”