Illinois Interchange Fee Prohibition Act: Credit Card Rule Change July 1

## Starting this summer, the way you pay with a credit card at Illinois restaurants and stores is set to change, thanks to a landmark new law. The first of its kind in the nation, the **Interchange Fee Prohibition Act** aims to lower costs for businesses by altering how transaction fees are calculated. The law officially takes effect on **July 1**, but it faces significant debate between retailers who support the change and financial institutions who warn of implementation challenges. ### Details of the New Law When you use a credit card, the merchant’s bank pays a fee to your card-issuing bank. This is known as an *interchange fee* or "swipe fee," and it typically costs the business around **2-3%** of your total bill. Currently, this fee is calculated on the entire transaction amount, including sales tax and any tip you add. The new Illinois law will prohibit interchange fees from being charged on the tax and tip portions of a transaction. The reasoning behind the [Interchange Fee Prohibition Act](https://ilga.gov/Legislation/ILCS/Articles?ActID=4515&ChapterID=67&Print=True) is that businesses shouldn't have to pay processing fees on money they don't keep as revenue—funds that are passed on to the government as taxes or to employees as tips. While a group of financial institutions filed a lawsuit to block the law, a federal judge upheld it in **March 2024**, paving the way for its implementation. ### Industry Reactions and Perspectives The new regulation has been met with mixed reactions from business owners and financial experts. On one hand, supporters see it as a much-needed relief for small businesses. Sam Toia of the Illinois Restaurant Association noted that the law will save small, independent restaurants a significant amount of money on swipe fees. However, others are concerned about the technical and financial hurdles. Ben Jackson of the Illinois Bankers Association has been vocal about the opposition, stating, "There’s no workable technology in place right now that can actually do what this law requires." He expressed doubt that businesses would be technologically prepared by the July 1 deadline. This sentiment is echoed by some business owners, like Peoria restaurant owner Tremaine Branch, who worries about the potential impact on establishments that already operate on "very thin margins." ### Compliance and Penalties The stakes for Illinois businesses are high. Merchants who fail to comply with the new law face a steep penalty of **$1,000 per transaction**. To avoid these fines, restaurants and retailers must ensure their payment processing systems are updated to isolate the sales tax and tip from the main bill before calculating interchange fees. The primary recommendation for business owners is to contact their payment processor immediately to inquire about necessary software updates and ensure they will be compliant before the **July 1** deadline. ### What Happens Next The **Illinois Interchange Fee Prohibition Act** represents a major shift in how credit card transactions are handled, with potential savings for merchants on the line. Business owners across the state must act quickly to work with their payment processors and update their systems to avoid penalties. As the first state to implement such a rule, all eyes will be on Illinois to see how this change impacts retailers, consumers, and the broader financial industry.