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May 2026 • Issue 26:05:02

Insider's report on payments

The litigious nature of interchange

savings to offset the costs if the legislation became law,
according to Common Sense.

The think tank further estimated that the legislation, if
enacted, would carry a cost of $67 million in economic
output and 350 jobs, statewide, in year-one alone. Logic
would dictate that this is bad policy. But lawmakers pay
attention to the constituencies that create the most waves,
and merchants, in sheer numbers, outnumber FIs by orders
of magnitude, which means they make waves that far
outnumber and are far bigger than those made by FIs.

Lawmakers in Illinois passed legislation that would ban
interchange on tax and tip amounts—legislation with
By Patti Murphy an effective date of July 1, 2026. However, the Illinois
Interchange Fee Prohibition Act is currently on hold,
itigation over interchange continues, seemingly following a ruling by the Office of the Comptroller of the
unabated. With merchant gripes taking years, Currency that federal banking law preempts the law. (The
in some cases decades, to play out in the courts, OCC is the primary regulatory authority for large national
L some are turning to the states for legislative relief. banks, like Citi, JPMorgan Chase and Bank of America.)
Lawmakers in at least 15 states are considering legislation
that would ban the imposition of interchange on the tax The Illinois Bankers Association and two credit union trade
and/or tip portions of transactions. associations successfully challenged a district court ruling
that said the law should take effect as planned. The U.S.
Proponents say the legislation aims to protect merchants Circuit Court of Appeals on May 8 sent the case back to the
from paying processing fees on money they don't keep. But lower court, ordering it to reconsider the case in light of the
the reality is that the savings would be minuscule at best. OCC's ruling.

Lack of common sense
The Common Sense Institute, a think tank that focuses on
free-market economics, estimated the average business in Contributed articles inside by:
Iowa would save just $220 a year if legislation pending in
that state banning interchange on the tax portion of a ticket Jaki Kackert .............................................................................................14
were to become law. But those savings likely would be
wiped out by costs incurred for upgrading POS systems, as Ken Musante ..........................................................................................17
well as whatever portion processors and their partners pass
on of infrastructure upgrades required for compliance. Brent Bowen ...........................................................................................26
Ram Palaniappan ..................................................................................29
While the pending legislation would generate $36.2
million in merchant savings statewide, the necessary George Csahiouni ................................................................................30
POS system and infrastructure changes would cost $82 Fadl Mantash ..........................................................................................34
million, Common Sense estimated. For 42 percent of small
merchants in Iowa, it could take a decade or longer for
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