If you thought a special edition focused on tax would be safe from the credit card wars, you were wrong!
The Land of Lincoln has become the center of a pitched lawsuit between banks, credit card companies, merchant groups and even the federal government. The fight is making financial services advocates nervous far beyond the Midwest.
Back in May, Illinois enacted the Interchange Fee Prohibition Act, a first-of-its-kind piece of legislation that would carve out specific portions of transactions from swipe fees – sales taxes and tips.
Banks sued in August, and the case is ongoing. But the banking lobby has not been entirely successful in stopping the law from going into effect. A judge granted a partial injunction for national banks as the lawsuit proceeds, but not Illinois banks.
State law, federal concerns: This is one case where banks and credit card providers aren’t worried about the money, per se. The carveout just doesn’t amount to a lot of profits lost, at least compared to what the lobby thinks it could lose if something like the Credit Card Competition Act became law.
But banks, forever in the long game, are worried about what comes after Illinois if the law stands. Pickup from other states has been limited so far, though there’s legislation in Pennsylvania that would mimic the Illinois law.
But the more states fiddle around in this space, the more banks will see greater potential for dysfunction. Eventually, that could build the case for Congress to intervene. Already, a bipartisan group of lawmakers has warned the current state of swipe fee costs in the United States is unsustainable.
Banks have the advantage for now. As we reported last week, House Financial Services Committee Chair French Hill (R-Ark.) isn’t interested in letting swipe fee reform advance under his watch. But we’ll have to wait and see what those pesky laboratories of democracy have in store.
