Banks opposing state's landmark credit card fees law keep up arguments in court, Springfield

Chicago Tribune

07-02-2025

Financial services companies in Illinois are fighting a landmark state law on credit card fees in court and in Springfield as banks get closer to a July 1 implementation they say they're not equipped to meet.
'The rails are not built for this train to move on. Like, they are not constructed. They don't even know — the engineering part is not done yet, let alone tracks laid down,' Ben Jackson, executive vice president of government relations at the Illinois Bankers Association, said after a downtown status hearing on the lawsuit Thursday.
The first-of-its-kind law, signed by Gov. JB Pritzker after being passed by Illinois lawmakers last year, will ban banks and credit card companies from charging retailers a small fee on sales taxes and tips. Retailers who support the measure say they're advocating for consumers while banks claim the law could create chaos in transactions that will inconvenience businesses and their customers.
Financial companies scored a partial victory in court when a federal judge in December agreed to put a temporary hold on the law for some types of institutions including national banks, meaning that they don't need to comply with the law as court proceedings continue. That relief was expanded this week to out-of-state banks doing business in Illinois, but other entities including payment networks, federal credit unions and in-state banks remain subject to the law.
The IBA as well as the American Bankers Association, America's Credit Unions and the Illinois Credit Union League are plaintiffs in the suit, which names Illinois Attorney General Kwame Raoul as a defendant.
As the lawsuit is being hashed out in federal court in Chicago, opponents are also laying the groundwork for a possible reversal of the law in Springfield, where it was part of the sweeping Democratic-led revenue package last year. State Rep. Margaret Croke, a Chicago Democrat who heads the committee covering financial institutions, last week introduced a bill that would repeal the law completely. However, there are no plans to move the bill 'until there is resolution from the courts,' she said.
Jackson said he's hoping for a ruling in his group's favor from U.S. District Judge Virginia Kendall by mid-spring. 'Then we can return to the legislature and say, 'Let's repeal this entire thing'' before the General Assembly's legislative session ends in May, he said.
While the plaintiffs in the lawsuit have claimed the partial injunction issued by Kendall as a win, proponents of the law and even some banking interests downplayed it, saying a partial injunction doesn't offer much of a solution since credit card companies and other parts of the transaction process are all connected.
'Unless the injunction applies to every party, it doesn't really apply relief to any of the parties,' Jerry Peck, senior vice president of government relations at the Community Bankers Association of Illinois, said Thursday. The CBTI isn't a plaintiff in the lawsuit but is backing Croke's bill to repeal the law.
Credit card companies and financial institutions currently charge retailers and restaurants a fee when consumers use credit cards, based on the total transaction amount of the goods, tax and any tip. The law would bar the financial institutions from charging the so-called interchange fees on the tax or gratuity portions of customers' bills, with the goal being to lower the amount that credit card companies can charge retailers.
Credit card fees average just over 2% of retail transactions, according to the National Retail Federation, meaning about $98 of every $100 sale goes to the retailer.
Opponents argue the law will create inconvenience for anyone in Illinois who uses a credit or debit card as banks and credit card companies struggle to implement it, as well as lead to major costs to financial services.
Retailers who support the ban say the so-called interchange fees are hidden charges that get passed down to customers. The Illinois Retailers Association asked to be added to the case as an intervening party, but Kendall denied that request last week.
Peck said given the steep penalties that could be imposed under the law, some small banks have considered no longer offering credit or debit card services as a result. Those banks are also trying to figure out whether they need additional staff or accountants to implement the law, he said.
'That potential thousand dollar fine per swipe could put a bank out of business,' said Peck, whose association's members include small Chicago-area banks like Devon Bank.
In June, a trade association representing credit card companies and banks began running online ads in Illinois declaring that the law may force consumers to pay for parts of their purchases in cash, as well as print ads saying, 'Tipping on your credit card is closed to Illinoisans.'
In addition to being generally opposed to the law, banks and credit card companies say the timeline to comply is unrealistic. Illinois would be the first state to require a distinction on consumer retail transactions between goods, taxes and tips, creating the need for a complicated software change, opponents say.
The change has kicked off a policy battle on multiple fronts. Peck, of the community bankers group, said the purpose of pushing a bill on the issue in Springfield this session while also fighting in court is to 'give ourselves belts and suspenders.'
Rob Karr, head of the state retailers' association, said in a statement that the bill was 'not a surprise given the ongoing legal challenge brought by banks and credit card companies seeking to protect their ability to unilaterally raise swipe fees on businesses and consumers.'
The new Illinois law is separate from federal legislation on interchange fees pushed by U.S. Sen. Dick Durbin, but it similarly affects Visa, Mastercard and other large financial services companies.