Illinois law could change credit card transactions at restaurants and stores

CHICAGO (WGN) — Charging your credit card at a restaurant or grocery store could change this summer if one swipe won’t cover the tax or tip.

It’s the first law of its kind in the country. While some feel it will save businesses money, banks aren’t happy about the change. 

“In the restaurant business, we operate on very thin margins. Every decision matters. Even small disruptions can have a huge impact on our bottom line,” said Tremaine Branch, a Peoria restaurant owner concerned about the Interchange Fee Prohibition Act, which becomes law in Illinois on July 1.

As it stands now, when you swipe your credit or debit card for a purchase, the retailer’s bank pays an “interchange fee” to the consumer’s bank, typically around 2-3%. The Interchange Fee Prohibition Act would eliminate those fees on the tip and tax portions of the transaction. 

The legislation was proposed to address concerns that businesses incur costs on money that isn’t part of their revenue for goods and services. After the bill passed, a group of financial institutions filed a lawsuit in 2024, and in March, a federal judge upheld the law. 

Sam Toia, with the Illinois Restaurant Association, believes the legislation could benefit business owners. 

“I have every faith banks can flip the software, we’re in 2026, to figure this out,” he said. “We’re out here fighting for our small independent restaurants throughout the state of Illinois that will save no swipe fees to our independent restaurants on taxes and tips. That will save them quite a bit of money.”

Businesses that don’t comply would face a $1,000-per-transaction penalty, however.

“There’s no workable technology in place right now that can actually do what this law requires,” said Ben Jackson, an executive vice president of government relations at Illinois Bankers Association. “It’s completely unknown whether Illinois businesses with that July 1 implementation date could put this law into practice.”

Businesses should check with their payment processor to update software and learn how to adjust their systems before July 1.