Several organizations representing banks and credit unions filed a lawsuit late Thursday challenging Illinois’s Interchange Fee Prohibition Act, which was signed into law June 7.
The lawsuit, filed in United States District Court for the Northern District of Illinois, was brought by the Illinois Bankers Association, The American Bankers Association, the Illinois Credit Union League, and America’s Credit Unions, formerly the National Association of Federally-Insured Credit Unions.
The Illinois Interchange Fee Prohibition Act exempts merchants in the state from paying interchange on sales tax and gratuities levied on credit and debit card transactions. Interchange is the fee merchants pay to processors on card transactions, typically a percentage of the transaction.
In exchange for the exemption, the state will cap what merchants earn for collecting sales tax at $1,000 per month. Before, Illinois merchants were allowed to keep 1.75% of the sales tax collected per month as compensation for acting as agents of the state. The deal was reportedly one of the most generous sales-tax discount programs for local merchants in the country.
The law was passed during the Illinois legislature’s spring session as part the state’s budget for the coming fiscal year. It is scheduled to go into effect July 1, 2025, the start of the state’s 2026 fiscal year.
In their complaint, the plaintiffs allege that, if the law is allowed to take effect, it “would not only throw well-operating payment card systems into chaos, it would also undermine the significant benefits, safety, and security that payment card systems provide to all participants.”
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