Limiting swipe fees will cut hidden costs for Illinois families

Across Illinois, families and small businesses are navigating the same challenge: how to manage rising costs in an already tight economy. From groceries to rent to utility bills, routine purchases that make up household and business budgets have all become more expensive in recent years.

What most people don’t realize is that a portion of those higher prices is the result of a hidden cost embedded in nearly every purchase paid with a credit or debit card. For decades, credit card companies have been unfairly charging businesses fees not only on what customers buy, but also on the sales tax they pay and the tips they leave for workers. Those fees are almost always passed on to the consumer in the prices we all pay. A new Illinois law will limit those fees.

The cost of credit: Peoria restaurants pass swipe fees on to customers as costs rise

The Interchange Fee Prohibition Act makes one commonsense change: it stops credit card companies from charging swipe fees on sales tax and tips – items that fall outside of the purchase price of the product or service. Retailers are required to collect and remit sales taxes on behalf of state and local governments and pass tips directly to workers. Yet, as it stands today, they pay swipe fees on both. Like any operating cost, those fees are ultimately reflected in the prices consumers pay every day.

By removing swipe fees on taxes and tips, Illinois consumers and businesses will save hundreds of millions of dollars annually. That’s meaningful relief at a time when households are managing tight budgets and local businesses are working to keep prices stable amid rising operating costs.

At its heart, this reform is about helping Main Street instead of Wall Street. Community businesses and the families they serve should not bear the burden of unfair fees just to line the pockets of Wall Street interests. 

Despite claims from the credit card companies that it will cause chaos and disruption for consumers and businesses, nothing in the Interchange Fee Prohibition Act changes how consumers pay or requires changes to card rewards. Consumers will continue to use cards exactly as they do today and any rewards decisions remain entirely with card companies, which have strong incentives to maintain them.

In fact, credit card companies can still charge fees on the cost of the product or service. They will simply be prohibited from charging extra fees on money that isn’t theirs: the taxes consumers pay and the tips workers earn Credit card companies already separate sales tax from the purchase price, and this can easily be applied to consumer transactions. Banks, credit card companies and credit card processors are experts at adapting to different standards across the nation and world, with several states not even charging a sales tax and versions of this law already existing in other countries. So, to be clear, any chaos created in implementing this law in Illinois will be their own doing.

That distinction matters because electronic payments are central to daily life. Families and businesses use credit and debit cards to buy groceries, pay medical bills, purchase school supplies, and cover routine services. When unnecessary fees are embedded throughout these transactions, the effect compounds.

Any business that accepts electronic payments, including retailers, healthcare providers, and restaurants, currently pays swipe fees on sales taxes and tips. Removing those fees will help reduce operating costs across sectors, helping businesses maintain reasonable prices and support jobs in the communities they serve. For small businesses that operate on especially narrow margins, even modest cost reductions can make a meaningful difference. Lower structural costs give businesses more flexibility to offer more competitive pricing and remain viable in challenging economic conditions. That stability directly benefits communities and customers.

Policies that lower everyday costs without limiting convenience or consumer choice are rare. The Interchange Fee Prohibition Act does exactly that. It preserves convenient electronic payments while lowering hidden costs that affect both families and small businesses.

At a time when affordability is a central concern for Illinois households, that’s a practical step in the right direction that will help families and Main Street businesses keep more of what they earn.

Rob Karr is the president and CEO of the Illinois Retail Merchants Association