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 IPFA 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 analysis on the complexities involved with implementing the law prepared by Howard Herndon and Womble Bond Dickinson, 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 Howard Herndon and Womble Bond Dickinson's analysis of the complexities and costs associated with the implementation of the IPFA.
