Heads up, Illinois—you might have to start carrying cash again
A new law in Illinois threatens to upend the secure and efficient card payments system—a move that could require all transactions to be paid partially in cash. The Interchange Fee Prohibition Act (IFPA) will ban interchange fees on the tax and tip portion of any card transaction occurring within the state. This might not sound like an issue consumers and workers should concern themselves with; however, the impacts on every single card transaction will be severe.
As this issue gains attention, many Illinoisans are probably wondering what an interchange fee even is. It is a fee (often 2.5 percent or less) charged by banks to merchants for card transactions at the point of sale. More simply, it is the fee charged to process a credit or debit card when a purchase is made. In addition to offering fraud protection on both ends, interchange processing ensures customer transactions run efficiently and safely and that funds are available to merchants. The IFPA would ban these fees, but only on the tax and tip portion.
Aside from the issue of state government using excessive authority to force private business to bend to its will, the law is simply unworkable as written. The infrastructure needed to process card transactions is vast and complex and cannot turn fees off and on for different portions of a receipt. Further complicating the situation, the IFPA would apply to any transaction within the state—meaning even travelers just passing through must comply. Coupled with the July 1 compliance deadline, this leaves retailers and customers with few options.
In practice, customers paying with a card would face one of several situations, likely guided by the merchant:
- Tax and tip must be paid in cash. An unacceptable solution in our digital economy. Especially harmful to tipped workers, who would likely experience a severe reduction in the frequency and amount of tips received. Would also cause extensive bookkeeping, recordkeeping, and cash management frustrations for merchants.
- Credit or debit card must be double-swiped. Here, the product or service charge would go through first, with a subsequent charge for the bill’s tax and tip portion. Slightly less frustrating than requiring cash, but still an accounting nightmare for merchants. Also likely to cause confusion and frustration among consumers when reviewing their card statements.
- No card payments accepted. Unlikely given the many benefits card purchases offer both customers and businesses. Could charge cards as usual and seek reimbursement; however, no system exists to handle this at scale. Given the number of daily transactions within the state, this is simply impossible under the current payments framework.
The new law causes obvious harm to consumers and businesses of all sizes, which begs the question: Who benefits? A quick peek at the state’s budget issues makes the answer a bit clearer. Initially, the IFPA was marketed as a tax savings for merchants. Illinois previously allowed merchants to keep 1.75 percent of the sales tax they collect in exchange for effectively serving as an unpaid tax collector for the state. That amount was reduced to a flat $1,000 per month per retailer at the start of 2025, due in part to the state’s budget issues. The IFPA was intended to “fix” the damage done to retailers; however, the law’s effects cause far more harm than any of its purported benefits.
This leaves several possible outcomes. One is a repeal of the law by the Illinois Legislature. Given time constraints on the current legislative session (and even stricter ideological constraints), this would be a narrow needle to thread. Next is outstanding litigation, which could ultimately determine that the law cannot be enforced in its current form or timeline. Finally, the federal government could attempt to override the legislation via mandate from bank regulators.
Unless they want to start carrying cash again, Illinoisans should consider vocal pushback against this obvious intrusion and disruption of their daily lives.