Spoiler Alert: Illinois Court Throws Cold Water On Swipe Fees

A Rare Win for Consumers

If you look up the word “rarity” in the dictionary, one definition that pops up is “the quality or state of being uncommon, unusual, or infrequent”. When discussing rarities in our everyday lexicon, we often allude to familiar tropes like a unicorn, Haley’s Comet, a two-dollar bill or talking to a real human when calling customer service. But we may just have a new nominee to add to this august list.

A Federal Judge Steps In

In a federal court decision in Chicago last week, U.S. District Judge Virginia Kendall upheld the vast majority of an Illinois state law prohibiting banks and credit card companies from charging interchange or “swipe fees” on tips and taxes.

How the Law Came to Be

It all started in 2024 when, as a part of the state budget process, Illinois lawmakers enacted the Interchange Fee Prohibition Act. The intent was to prevent the credit card industry from charging interchange fees on the portion of card transaction amounts attributable to government sales taxes and employee gratuities. For years, the credit card industry has been charging high swipe fees on those portions of transactions even though merchants do not keep the amounts they collect in sales taxes or in tips on behalf of their employees. Those high swipe fees end up getting passed along to consumers in the form of higher retail prices, making groceries and gas less affordable for everyone.

The Banks’ Lawsuit Falls Flat

Financial trade associations including the Illinois Bankers Association filed a lawsuit against the Interchange Fee Prohibition Act in late 2024, seeking to stop the law from taking effect. The banks and credit card industry argued that federal preemption shields them from this law. The judge disagreed. She rejected banks’ claims that the Illinois law is preempted by the federal National Bank Act. She pointed out that, unlike other fees that banks set and charge on an individual basis, interchange fees are set centrally by Visa and Mastercard on behalf of all the banks that issue cards. She called that “the core snag” in the banks’ lawsuit.

A Crack in the Industry’s Armor

The totality of this decision – clearly establishing interchange fees as not covered by the National Banking Act and thus subject to state reform efforts – blows a massive hole in the credit card industry’s major objection to this law and the ones sure to follow in other states. Their other arguments against similar legislative efforts – flimsy as they are – will now have a sharper light on them without the protection of the preemption issue – at least for the foreseeable future. Giant banks and credit card networks may continue to scream that if reform causes them to lose a dime of their fee revenue, the sky will fall. But without the shield of their preemption argument, they will have to defend their 30-to-50 percent profit margins to state lawmakers across the country at a time when their exorbitant swipe fees are crushing small businesses and making it harder for consumers to put food on the table. It ought to be a good show.

Wall Street Shrugs

While the banks and credit card companies are busy peddling tales of financial Armageddon, their neighbors down the block on Wall Street seem to know better. Visa and Mastercard’s stock prices were largely stagnant in the days after the court decision was rendered. If the impact of increased competition and fairness in the payments marketplace had been considered remotely material to the leading credit card companies, investors would have reacted accordingly. Instead Wall Street offered a collective yawn. That should tell anyone all they need to know. Apparently JPMorgan Chase’s CEO Jamie Dimon’s $770 million salary in 2025 and likely more this year appears to be safe.

The Fight Isn’t Over

But that won’t stop the issue. Retailers and restaurant owners will continue to petition their elected leaders for urgently needed relief from the duopoly of Visa & Mastercard and their heavy-handed business practices. And the credit card giants will continue their playbook of misdirection trying to convince lawmakers that the system will fall apart if any change is made to the status quo. They will spend a fortune trying to mislead and scare away any further reform efforts because, as the Illinois case proves, once they are subject to a thorough examination of the facts immune from misinformation campaigns and PAC dollars, the credit card giants don’t like their chances. Nor should they. Now that’s a real rarity.

Joe Kefauver is a senior advisor to Americans for a Modern Economy, an organization committed to ensuring that local, state, and federal policies reflect changing technologies that are reshaping the way consumers, businesses, and communities operate in the 21st-century economy.