Washington, D.C. — Last Friday, Demand Progress joined nine consumer, antimonopoly, and small business groups in defending an Illinois law that bans swipe fees on taxes and tips but is now facing a court challenge from the bank lobby and the Trump administration.
- Read the brief here
The Illinois measure, passed in 2024, ends swipe fees – the money merchants pay when a customer uses a credit card – on taxes and tips. Small businesses, already suffering from high swipe fees, do not benefit from tips and taxes, which are passed on to employees and governments. Other states are considering similar measures. The brief asks the U.S. Court of Appeals for the seventh circuit to prevent the federal government from overriding the law in the case of Illinois Bankers Association et al v. Raoul.
“Swipe fees on taxes are a private tax on public taxation and tips are meant to go entirely to hardworking employees,” said Carter Dougherty, senior fellow for antimonopoly and finance at Demand Progress Education Fund. “There’s no reason to share that money with the Visa-Mastercard duopoly that imposes high swipe fees and shares them with the megabank oligopoly that dominates the credit card business.”
Specifically, the banks and the administration are trying to employ the doctrine of federal preemption under the National Bank Act (NBA) to invalidate the Illinois law. Congress set limits on preemption in the Dodd-Frank Act in 2010, but the Office of the Comptroller of the Currency, which regulates banks chartered under the NBA, is trying to stretch this power beyond what the law allows. Those banks include JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Capital One, which dominate credit card issuance.
“Small businesses shouldn’t have to subsidize opaque and excessive fees set by powerful payment networks. Illinois took a commonsense step to protect local businesses and consumers, and federal law does not give banks or networks a free pass to override those protections,” said Shawn Phetteplace, cational campaigns director for the Main Street Alliance. “We stand firmly in support of that principle.”
“We support the efforts of the Illinois Attorney General to convince the Court that the State of Illinois should be allowed to protect consumers by banning harmful swipe fees on taxes and tips,” said Eric Zell, litigation director for the National Association of Consumer Advocates. “The Court should take the common sense approach in this case by siding with the interests of consumers instead of the bank lobbyists and the corporate interests they represent.”
“The Illinois Interchange Fee Prohibition Act prevents banks and credit card companies from siphoning more money from customers and small businesses by imposing interchange fees on taxes and tips, but, unfortunately, Wall Street banks and their regulator have sued to block this commonsense measure,” said Tom Feltner, associate director of consumer policy at Americans for Financial Reform Education Fund. “States have the ability to stop high and harmful interchange fees, and we urge the court to protect their ability to do so.”
“Illinois exercised its clear right, ensured by Congress, for states to protect their residents and small businesses from consumer financial abuses,” said Mike Litt, consumer campaign director at U.S. PIRG. “This is simply not a case where the federal government can override state law. Even if it could, why would the government defend unjustified fees that make things more costly for small businesses and the people who frequent them?”
“At a time when the federal government has not only largely abandoned efforts to protect consumers but is actively seeking to undermine state efforts to do so by asserting overbroad claims of preemption, it is necessary for groups like us to push back against those efforts,” said Renée Steinhagen, executive director of NJ Appleseed Public Interest Law Center.
“Visa and Mastercard charge small businesses and consumers billions of dollars a year in swipe fees, even on taxes and tips that go straight to the government and workers,” said Morgan Harper, director of policy and advocacy at the American Economic Liberties Project. “With the Trump-Vance administration refusing to hold corporate monopolies accountable, states like Illinois are stepping up to protect their residents. The courts should let them.”