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Landmark Legislation in Illinois: Tackling Swipe Fees

This year marks a pivotal moment for small businesses and consumers in Illinois with the introduction of a groundbreaking law that prohibits credit card companies and processors from imposing interchange fees on taxes and tips. This legislation is not just a local initiative; it stands as the first of its kind in the nation aimed at addressing exorbitant “swipe fees” that have burdened merchants for far too long. These fees disproportionately affect small businesses and everyday consumers, creating a necessity for proactive legislative solutions at the federal level to defend this important reform.

The Burden of Credit Card Interchange Fees

Credit card interchange fees, commonly known as “swipe fees,” represent the second-largest operating cost for small businesses, surpassed only by labor expenses. Whenever a customer swipes, inserts, or taps a credit card for payment, merchants incur these fees, typically ranging from 2% to 4% of the transaction amount. These escalating fees force small businesses to transfer significant costs to consumers, resulting in the average American family paying an additional $1,200 each year directly because of these surcharges. This situation not only contributes to inflation but also dampens consumer purchasing power, effectively hindering economic growth.

The Market Dynamics Behind Swipe Fees

The root cause of excessive swipe fees lies in a concerning lack of competition within the credit card industry. Major players like Visa and Mastercard dominate about 80% of the credit card market, creating a corporate duopoly that is largely unchecked. This concentration of power allows these giants to impose higher swipe fees with little resistance, as alternatives for retailers are scarce or nonexistent.

Prior to the enactment of Illinois’ new law, business owners in the state were collectively paying almost $4 billion annually just in swipe fees. When viewed on a national scale, the figures are staggering; businesses across the United States are paying a whopping $148 billion each year in these surcharges. This is a blatant example of market manipulation that should galvanize Congress into action.

Congressional Actions for Small Business Relief

In response to this issue, some lawmakers, including U.S. Senator Dick Durbin from Illinois, have become advocates for reforms aiming to equip small businesses with more options for processing credit card transactions. Their proposed legislation, known as the Credit Card Competition Act, transcends partisan lines and is gaining traction among various stakeholders interested in fostering fair competition. Even Vice President JD Vance, during his time in the U.S. Senate, supported this important proposal.

The Credit Card Competition Act seeks to harness the principles of free-market competition by requiring large banks—those with over $100 billion in assets—to include an additional processing network alongside Visa or Mastercard on the credit cards issued to consumers. This measure is designed to encourage credit card networks to compete for the business of retailers. The ultimate goal is to pressure the duopoly to lower swipe fees, benefiting everyone involved. More options and competition generally lead to reduced costs and improved service in almost any industry.

The Economic Impact of the Proposed Legislation

The passage of the Credit Card Competition Act is poised to save businesses an estimated $16 billion collectively, while Illinois merchants alone could save approximately $650 million. These savings represent a substantial lifeline for small businesses, permitting new investments and growth. Nationally, more than three-quarters of small-business owners support these reforms, clearly illustrating a widespread consensus on the necessity of legislative change.

Nevertheless, until lawmakers prioritize the needs of small businesses above those of financial institutions and credit card companies, these entrepreneurs will continue to find themselves vulnerable to the whims of powerful financial giants.

The Broader Implications for Small Businesses

Advocating for the passage of the Credit Card Competition Act transcends merely reducing fees. It is fundamentally about safeguarding small businesses, cultivating competition within the payments sector, and empowering merchants to foster economic opportunities within their communities. Thanks to the leadership of individuals like Governor JB Pritzker, Senate President Don Harmon, and House Speaker Emanuel “Chris” Welch, Illinois has taken decisive action to tackle this pressing issue. Now, it is incumbent upon our elected representatives in Washington to follow this example and enact similar reforms at the national level.

Utilizing AI legalese decoder for Clarity

Navigating the complex legislative landscape can be challenging for small business owners. This is where the AI legalese decoder can play a critical role. This innovative tool simplifies the intricate language of legal documents, making it easier for business owners to understand their rights and obligations under the new law. By breaking down the legalese into clear, comprehensible terms, it empowers small business owners to make informed decisions, engage effectively with legislators, and advocate for their interests. In a landscape fraught with complexity, AI legalese decoder is an invaluable resource for those who seek clarity and support in their journey toward economic stability and growth.

Rob Karr is the president and CEO of the Illinois Retail Merchants Association. The opinions expressed in this piece are those of the author and do not necessarily represent the views of the Chicago Sun-Times or its affiliates.

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