Illinois Interchange Fee Prohibition Act Challenged.
On August 15th, the American Bankers Association (ABA), America’s Credit Unions, the Illinois Bankers Association and the Illinois Credit Union League filed a lawsuit to block the Illinois Interchange Fee Prohibition Act (IFPA), which prohibits the collection of interchange on sales taxes, excise taxes, and tips, if a merchant elects to separate out those charges from the price of a purchase.
The plaintiffs assert that the IFPA will disrupt the current payment system, and that it interferes with the federal government’s exclusive regulatory authority over federally chartered financial institutions.
The IFPA was signed into law on June 7th and is set to take effect in July 2025. The act came about when Illinois capped a tax refund retailers can claim at $1,000/month. The Illinois Retail Merchants Association negotiated the interchange fee law with lawmakers to offset the impact of the tax refund cap.
Each violation of the IFPA is subject to a $1,000 penalty per transaction for the merchant acquirer, but there is no penalty for merchants who provide inaccurate information about the tax or gratuity portion of the transaction.
Implementation of the IFPA is problematic as it requires separation of the core transaction, sales and excise taxes, and gratuities, so that interchange and processing fees can be applied and settled in accordance with the new law. Changing systems and processes currently in place to enable this will be both time-consuming and costly. According to Howard Herndon, who prepared an analysis of the complexities involved with implementing the IFPA, industry experts estimate that the changes could cost hundreds of millions of dollars and can take anywhere from three to five years to implement, as technological upgrades, regulatory approvals, and coordination among multiple stakeholders will be required.
For more information see this Bloomberg article and this National Law Review article.
If your business is looking to better manage your merchant account or reduce fees, we’re here to help. We fix and monitor your existing merchant account, and we bring that money back to you. No need to change processors or add a project to your team’s already hectic workload. Schedule a consultation today.
Verisave is a third-party cost-reduction firm specializing in merchant accounts and credit card processing fees.
Verisave is not a payment processor, and is not affiliated with any processors, card brands, or banks.
Verisave has more than 20 years of experience optimizing and monitoring the credit card processing industry.