The Green Sheet Online Edition
September 14, 2026 • 26:09:01
Staying compliant with a patchwork of laws
Merchants have been complaining about the cost of card acceptance for decades—in the courts and legislative chambers. Now absent definitive action on the federal level the states are stepping in, leaving acquirers and their sales partners vulnerable to a patchwork of laws.
"The states have really become the laboratories, and different states are going to come up with different laws they think are right for their consumers," said Jonathan Razi, founder and CEO of FindustryAI. "What that means is a national merchant, or a national payment processor or an ISO with merchants in many different states has to really have monitoring muscle." What's considered illegal in Illinois, for example, isn't the same as in Louisiana or Alabama, he added.
Different states, different treatment of processing fees
A Louisiana law that took effect on Aug. 1, 2026, prohibits merchants from imposing surcharges when a customer uses a debit card. The law, said James Shepherd, president of Full Stack Payments, doesn't make much of a difference, as Visa and Mastercard rules already prohibit debit card surcharging. The ban applies whether the card is authorized using a PIN or signature.
Under the Louisiana law (Act 751), a consumer who is surcharged for a tax amount of a purchase can request a refund, and if the merchant declines, they can take that merchant to court. But as Shepherd pointed out, there aren't many people willing to incur legal fees to sue a merchant for overcharging them a few dollars. On the other hand, "It could be a warning to merchants that they might be the targets of class-action suits," Shepherd opined.
Illinois has enacted a much more stringent set of prohibitions that take direct aim at acquirers and their sales processing partners. The Interchange Fee Prohibition Act (IFPA) would except tips and sales taxes from interchange fees beginning July 1, 2027.
But not all parties in the acquiring stream will feel the hurt. A federal district court judge ruled in June that national banks, out-of-state state-chartered banks, federal savings associations and payment networks are not bound by the Illinois law. Merchants are appealing that ruling.
The Illinois law was originally set to take hold this year, but opponents successfully lobbied state lawmakers to delay implementation, much to the chagrin of merchants. In an op-ed published in Crain's Chicago Business on Sept. 2, 2026, Rob Karr, president and CEO of the Illinois Retail Merchants Association, chastised lawmakers for putting off implementation.
"Illinois lawmakers say affordability is one of their defining priorities," he wrote. Yet they "passed on an opportunity to try and ensure families and businesses save hundreds of millions of dollars a year" by postponing implementation of the surcharge ban.
A 'body blow' to surcharging
More recently, Alabama Governor Kay Ivey signed into law Senate bill 221, which bans merchants from imposing surcharges on the tax amount when a credit card is used to pay a bill, effective Oct. 1, 2026. "In other words, if a merchant adds a surcharge or convenience fee to a card transaction, the sales tax is now computed on the pre-fee amount only," Razi said.
Bart Fletcher, president of the Petroleum and Convenience Marketers of Alabama, welcomed the legislation, explaining to a local newscaster that processing fees are "just not something that was contemplated when the state sales tax law was passed." "In my opinion, this is a big body blow for surcharging," Shepherd said during a recent Merchant Sales Podcast. "I don't know a single processor that is able to track this information correctly for settlement. The trick here is the processor needs to collect enough money to cover the credit card processing fees."
Consider the example of a $100 purchase with 4 percent sales tax and a 3 percent processing fee. The sales tax the merchant collects would be $4 (4 percent of $100) and the processing fee they incur would be 3 percent of $104, which is $3.12.
Similar legislation was proposed in Pennsylvania and approved by a state House committee. It would need to pass the full House and the state Senate before the governor could sign or veto it. There also is momentum in New Jersey for an Illinois-style law that would ban interchange on tips and sales tax.
"I don't think anybody has an issue with the cost of doing business or paying for the process, but when you're getting hit with fees that are costing [a small business] a quarter million dollars or more, those are real dollars," Daniel Kim, president and CEO of the New Jersey Restaurant and Hospitality Association complained in an interview with the publication New Jersey Business.
In a related matter, the New Jersey attorney general's office recently sent warning letters to a group of service, retail and restaurant operators that they need to properly disclose card surcharges or risk civil penalties under the state's consumer protection laws. The office said the "cease and desist warning letters" were triggered by consumer complaints.
'A herculean task' meets dual pricing?
"It's a herculean task to reprogram [POS systems] for one state," said Chris Dryden, founder and partner at Global Legal Law Firm. In a Payments Experts Podcast, Dryden estimated it would cost "many billions of dollars" to comply with an Illinois-style law and four to five years of coding and other tasks associated with making sure POS systems are determining interchange in accordance with the law.
Shepherd said he considers dual pricing the best solution to the conundrum created by diverse state laws. That means posting the cash and card prices on the products or product shelves, menus, websites and points of sale so that the customer knows the all-in cost in advance of tendering payment. "I have not seen a state law yet where a true dual pricing scenario would not work," said Shepherd.
Colorado Governor Jared Polis vetoed in June a law similar to the pending Illinois law. But not without firing off a warning to the payment card industry. "Since similar legislation came up last year, I have been open to the core concept in this bill and the problem it is trying to solve," the governor wrote in a letter to state lawmakers. "[T]he credit card industry is ripe for disruption, and there is far too much friction in our transaction ecosystem." However, Governor Polis said, the problem is best addressed at the federal level.
Polis's decision drew criticism from the merchant community. "Colorado legislators stood up for small businesses and consumers, but this veto leaves them stuck paying inflated, price-fixed swipe fees not just on their purchases but on top of sales tax as well," said Doug Kantor, general counsel for the National Association of Convenience Stores and a member of the Merchants Payments Coalition board. "Coloradans deserved relief, and this decision denies them more than $200 million a year in lower prices."
Kantor's calculation assumes merchants will pass on savings from interchange to consumers. When the Durbin Amendment was signed into law in 2010, instructing the Fed to cap debit interchange, the cap generated $8.6 billion in annual merchant savings, according to a 2014 report by the Federal Reserve Bank of Richmond. But Consumers saw very little of that money. Among businesses surveyed by the Richmond Fed for the report 77.2 percent of merchants had not changed prices; 21.6 percent increased prices and 1.2 percent said they reduced prices.
In a press release, issued by the MPC on Aug. 26,2026, Kantor also took issue with Mastercard and Visa stock prices, which have been climbing. On Aug. 24, Visa stock closed at $382.41; Mastercard closed at a record high of $599.86. "It's clear that Visa and Mastercard are getting rich on the backs of small businesses and American consumers," Kantor said.
Passing the buck to Congress
The MPC seems to be placing a lot of hope on the Credit Card Competition Act, legislation spearheaded by Senators Dick Durbin, D-Ill., Roger Marshall, R-Kan., and Peter Welch, D-Vt. President Donald Trump also weighed in, stating in a Truth Social post endorsing Sen Marshall's bid to win a new term of office, "Roger is working tirelessly to pass the Credit Card Competition Act in order to stop the out-of-control swipe fee ripoff."
The CCCA aims to provide merchants the ability to choose what network processes their credit and debit card payments. Only one of those networks can be controlled by Visa or Mastercard. Issuers, therefore, would need to make the cards they issue capable of clearing through multiple networks. Similar bipartisan legislation is also pending in the U.S. House.
Jessica Walsh, an associate at Global Legal, suggested that were the CCCA enacted as proposed it would almost surely necessitate a new card network. "Who's going to step up and do that?" she asked.
The Congressional Research Service offered a suggestion in a 2023 paper: "[T]here is nothing stopping the major retailers from creating a payment network that cuts out the major payment networks and lowers interchange costs." Merchants did that in 2012.
Patti Murphy is senior editor at The Green Sheet, president of ProScribes Ink (www.proscribes.net) and self-described payments maven of the fourth estate. Her Today in Payments reports are a regular feature of the Merchant Sales Podcast.
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