A new prohibition on interchange fees paid by merchants was included in Illinois HB 4951 and will go into effect in Illinois on July 1, 2025. The law forbids card networks from receiving or charging any fees on the tax or gratuity amount included in a sale. Currently, interchange (or swipe) fees are paid by businesses that accept credit card payments from customers, and the fee is currently charged on the total value of the bill with no consideration of sales tax included in the total and without exemption for possible tips. However, this leads to a situation where any given business is charged a fee by the card processor for collecting tax or gratuities.
The new law provides further restrictions on card processors by disallowing changes in other fees charged by card processing companies and banks which would allow them to get around the goal of this law. Once the law goes into effect, it also allows for a $1,000 civil penalty per transaction plus a refund of fees charged/ collected.
Though this law goes into effect mid- 2025, it is a good idea for Illinois taxpayers to be aware of this now and lookout for updates or guidance the state may provide. Further, merchants who accept credit card payments will want to be mindful their systems are able to track how these fees are applied, so they will have required documentation after the effective date to pursue the penalties they may be due. (Illinois H.B. 4951, Signed by JB Pritzker 6/7/2024)
UPDATE: For a second time, the Interchange Fee Prohibition Act (IFPA) has been delayed, with the effective date being pushed to July 1, 2027. The decision stems from regulatory confusion caused by the Office of the Comptroller of the Currency’s interim final rule declaring the IFPA preempted for national banks. (Illinois S.B. 3645, Signed by JB Pritzker 6/29/26) Major legal challenges against the law, levied by a coalition of banking and credit union groups, including the American Bankers Association, are ongoing as a federal judge in the U.S. District Court for the Northern District of Illinois ruled on June 1, 2026, that federal law preempts the IFPA. The financial organizations are still fighting through the courts to prevent what they see as a competitive disadvantage caused by the IFPA. (Illinois Bankers Association et al. v. Raoul, U.S. District Court for the Northern District of Illinois, No. 1:24-cv-07307)