Illinois’ big blunder: How the swipe fee ban backfired and what it means

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When a policy is so flawed its backers are looking for the exit, you know you’ve outdone yourself.

Illinois lawmakers have passed many anti-consumer bills, but their latest experiment banning credit card swipe fees on sales tax transactions takes their missteps to a new level. The law has barely taken effect, and original supporters are now scrambling to reverse course before the fallout hits.

Enter Rep. Margaret Croke, a Democrat stepping up with a bill to repeal the one-year-old interchange fee ban before businesses feel its full brunt. Credit where it’s due — Croke acknowledges reality. However, this repeal effort is undeniable proof of the reckless policymaking that has long plagued Illinois’ economy.

Although the courts have just started allowing the law to take effect, businesses are bracing for consequences. The U.S. District Court for the Northern District of Illinois recently denied a preliminary injunction sought by credit unions. The legal battles will continue, but, in the meantime, businesses have to adjust as the damage becomes painfully clear.

Credit card networks and payment processors won’t simply absorb the financial hit because they are businesses, not charities.

Instead, they will adjust prices to recoup lost revenue, likely through higher processing fees, increased interest rates, or the elimination of small-business-friendly banking services.

The result is small businesses already struggling under Illinois’ crushing tax burden will bear the brunt of the costs. Additionally, national retailers with locations in Illinois now have to update their systems. That means operational chaos, compliance headaches, and additional costs.

Some businesses may even stop accepting credit cards for certain transactions altogether. Nothing screams “pro-consumer policy” like making it harder for customers to pay for goods and services.

Illinois may be leading the charge into this economic mess, but the state is not alone in its thinking.

Federal lawmakers on opposite sides of the political spectrum, including Sen. Josh Hawley (R-MO) and Sen. Bernie Sanders (I-VT), are pushing similar policies to regulate interchange fees nationwide. They should take a hard look at what’s happening in Illinois before they inflict the same economic damage across the country.

The issue is bigger than one bad law in one state. It’s a preview of what would happen if the federal government were to impose similar regulations on the entire nation, or if the dozens of other states considering similar legislation get their way.

The moment lawmakers decide they can override market forces and dictate how financial institutions recover costs, businesses and consumers pay the price.

A national interchange fee cap would lead to higher banking costs, fewer rewards programs, and increased fees on everyday transactions, just like we saw after the federal government capped debit card fees under Dodd-Frank. That move forced banks to recover their losses by eliminating free checking accounts and raising fees on low-income customers.

Instead of saving money for businesses or consumers, these policies create new costs elsewhere, make payments cumbersome, and introduce unnecessary complexity into the economy. If Illinois can recognize the mistake and move to fix it, federal and state lawmakers need to take the lesson to heart.

There’s still time to prevent the worst of the fallout.

Rep. Croke’s repeal effort is a rare moment of economic sanity in Springfield, and it deserves bipartisan support, even though she has said the bill will not move forward “until there is resolution from the courts.” But the fact that some lawmakers are resisting repeal should concern every business owner and consumer in Illinois.

In Springfield, admitting failure is often harder than enduring the consequences of bad policy—and those consequences are coming.

As businesses adapt to this law, expect to see higher costs passed on to consumers, reduced access to banking services, and a host of unintended consequences rippling across the economy.

In the future, those same lawmakers should stop treating businesses and taxpayers like test subjects in ongoing regulatory experiments.

At some point, someone in Springfield, in Washington, and in statehouses across the country needs to learn that good intentions don’t override economic reality.

The time to repeal the interchange fee ban is now.

Mattias Gugel is director of State External Affairs at National Taxpayers Union, and Jessica Ward is senior director of State Affairs at National Taxpayers Union.

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