Delaware and Colorado are making headway with bills to curtail card interchange fees on taxes or tips in the wake of Illinois passing the Interchange Fee Prohibition Act in 2024.
The Illinois law banned interchange fees related to taxes and tips when consumers swipe credit or debit cards to pay for goods and services. It’s scheduled to take effect July 1.
Nearly a dozen states have pursued similar laws, with the legislatures in Delaware, Rhode Island and Colorado acting on such bills in committees this month.
The laws have support from merchant trade groups eager to reduce fees that retailers, restaurants and other sellers must pay when consumers swipe credit and debit cards. But the banks that issue the cards, and card networks like Visa and Mastercard that process the payments, oppose the laws that would reduce their fee revenue from transactions.
A Colorado Senate committee last week passed a bill that bans the fees on sales tax, with that bill expected to move to the floor of the Senate soon. Also, a Delaware House committee advanced a bill last week to the chamber floor that would halt the fees on tips. A Rhode Island legislative committee also heard testimony on a similar bill this month.
The state legislation gained traction after President Donald Trump earlier this year backed an congressional effort by Republican U.S. Sen. Roger Marshall from Kansas to inject more competition into the card market. Marshall has teamed with Sen. Dick Durbin, a Democrat from Illinois, to push for the Credit Card Competition Act, which would require banks that issue cards to ensure there are alternatives to Visa and Mastercard for processing transactions. Facing intense bank opposition, the proposal has made little progress in Congress.
Still, the law in Illinois faces a federal appellate court hurdle. The Seventh Circuit Court of Appeals is hearing arguments now as trade groups for financial institutions and payments companies opposed to the Illinois law seek to overturn a U.S. District Court ruling last month that upheld it.
In February, U.S. District Judge Virginia Kendall for the Northern District of Illinois weighed in on the Interchange Fee Prohibition Act, saying it presented “a close case” because the law is novel. “What truly makes this case complicated is that the IFPA — specifically the Interchange Fee Provision — does not directly regulate banks,” she wrote.
Kendall had previously issued a preliminary injunction, blocking the law for many of the affected parties, ahead of her decision last month that upheld the law.
The Office of the Comptroller of the Currency and former comptrollers have weighed with amicus briefs this month to the appellate court arguing that the law would interfere with the federal government’s ability to regulate the banking industry.
Bank and payments firms’ trade groups, including the Electronic Transactions Association, also oppose the other states’ efforts to implement copy-cat laws.
“It’s bad policy because it unnecessarily disrupts a perfectly functioning payments industry, and it forces payments companies to process transactions for free, with the bulk of benefits going to large businesses, and not small businesses,” said ETA Executive Vice President Scott Talbott, who has been active in lobbying some state legislators.
He said he recognizes that the merchants pushing the state laws are making progress and trying to capitalize on it. “They’re trying to create momentum,” he said in an interview Tuesday.
Meanwhile, another financial trade group, the Electronic Payments Coalition, that also opposes the Illinois law began a public advertising campaign Wednesday to back a bill in the state that would repeal the statute.
The EPC, which is using TV ads, said it aims to “ensure Illinois voters know credit and debit cards may not work at Illinois businesses starting July 1, 2026.”
Meanwhile, the Merchant Payments Coalition issued a press release Thursday noting that combined debit and credit card fees last year climbed nearly 6% to a record annual $198.25 billion, citing a report from the research firm Nilson Report.
“Credit card swipe fees make just about everything Americans buy more expensive,” National Association of Convenience Stores General Counsel Doug Kantor said in the MPC release. It’s time to end the “swipe fee ripoff,” said Kantor, who is also an MPC Executive Committee member.
