PEORIA (25News Now) – Consumers could face confusion this summer when paying with credit or debit cards, as a new Illinois law aims to eliminate certain card swipe fees.

The Interchange Fee Prohibition Act is set to take effect July 1, banning card swipe fees on taxes and tips. The change would impact how transactions are processed by financial institutions.

Currently, when consumers use a credit or debit card, merchants pay an interchange fee, typically around 2% to 3%, to card-issuing banks or credit unions for each transaction.

The law, signed by Gov, JB Pritzker in 2024, would be the first of its kind in the nation. Its rollout was delayed due to ongoing legal challenges, and questions remain about how it will be implemented.

“These fees, set by networks and card networks like Visa and Mastercard, cover processing costs, fraud costs, rewards programs,” said Libby Calderone, president of the Illinois Credit Union League.

“They are calculated as a percentage of the transaction amount. These fees support the quick, convenient, frictionless payment system that consumers and merchants expect and enjoy.”

Calderone said financial institutions are struggling to comply with the law, noting that current payment systems are not designed to separate taxes and tips from transactions.

“There is a workaround though for that tax and gratuity portion, it can be processed as a second transaction,” she said.

“Separate for the goods and services and pay for it with cash. There [are] a lot of problems with that workaround though. Mainly, it’s two transactions, so much for that frictionless payment experience that we all enjoy, and consumers don’t carry cash. They’ll be unable to complete their transaction,” she continued.

Sam Toia, who leads the Illinois Restaurant Association, disagrees, arguing that banks can adapt.

“Obviously, the bankers are pushing back, and they’re saying you can’t leave tips, or you can’t pay your sales tax with your credit card—that’s not true,” said Toia.

“It’s 2026, and that big banks could basically flip a software into the program. They don’t really want to because they don’t want to lose the fees that they are collecting on taxes and gratuity.”

Toia said the law would benefit independent restaurants across Illinois by reducing costs and allowing restaurant owners to keep more money in their pockets.

“He or she can be paying close to $15,000 a year, so it’s in the thousands of dollars. So, we’re trying to help our independent restaurants here, be it Peoria, be it Rockford, be it Chicago, to help them keep the doors open,” he said.

If enforced, the law would include a $1,000 fine per transaction for a violation.

Tremayne Branch, owner of Rumberger’s Wings in Peoria, said he is concerned about how the law will be implemented and has not received clear guidance from the state on how to comply.

“In the restaurant business we operate on very thin margins,” Branch said. “Every decision matters. Even small disruptions can have a huge impact on our bottom line. We rely on things running smoothly, especially when it comes to how our customers pay.”

The law would also limit how financial institutions can use transaction data. Calderone said that information is critical for fraud detection and rewards programs.

“Fraud rules are set based on a consumer’s behavior,” she said. “If you can’t use that transaction data to look at that behavior, and see if it’s abnormal, and detect fraud, fraud costs are [going] to go up, and merchants and consumers are going to bear those costs.”

The issue has also drawn national attention.

In March, the Electronic Payments Coalition launched an advertising campaign in Illinois opposing the law, showing scenarios where card payments for tips or taxes could be declined.

It remains unclear how the law will be implemented.

The Office of the Comptroller of the Currency, part of the U.S. Treasury Department, is currently reviewing potential action related to the law. Details have not yet been publicly released.

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