Threat to credit card rewards growing as states look to regulate

The battle against swipe fees is heating up.

If you've been reading TPG for the past year and a half, you've probably seen our reporting on the Credit Card Competition Act, a bipartisan bill in Congress that aims to limit swipe fees and interchange exchange fees.

The bill would require credit card-issuing banks to offer at least two networks for merchants processing electronic credit card transactions. The bill authors say this would inject more competition into the credit card industry while lowering the interchange or swipe fees merchants pay when shoppers swipe their credit cards.

Card companies charge merchants in exchange for consumers using credit cards at those merchants; businesses ranging from mom-and-pop shops to hotels are charged each time a consumer pays with a credit card.

But the national effort isn't the only threat to the credit card majors. At least three states have introduced bills targeting excessive swipe fees at the state level.

Here's a roundup of all the current state legislation as of July 9.

Illinois

The Illinois state legislature included a provision in its fiscal 2025 budget that would prohibit swipe fees on sales taxes, state excise taxes and gratuities — marking the first state law of its kind.

The Interchange Fee Prohibition Act allows retailers to receive reimbursement for swipe fees paid on taxes and gratuities beginning July 1, 2025. Democratic Governor J. B. Pritzker signed the bill in June.

Senate Majority Whip Dick Durbin, a Democrat from Illinois who has been a key figure in the Senate working to get federal legislation passed to dramatically limit swipe fees, came out strongly in favor of the Illinois legislation.

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"The Illinois state legislature took a major step forward in pushing back against the swipe fees that are charged by credit card companies — fees that are nonnegotiable for merchants and that big banks use to pad their already high profits," Durbin said in a statement. "Now the federal government should take a page out of Illinois' book."

New York

As of Feb. 11, the Credit Card Surcharge Law requires sellers in New York State who apply a credit card surcharge to sales transactions to disclose the total price for consumer credit card transactions, including the surcharge.

Additionally, the law prohibits sellers from charging a final price exceeding the posted price and prohibits sellers from imposing credit card surcharges greater than those charged by the credit card company to the seller for such card use.

The Credit Card Surcharge Law applies regardless of whether the surcharge is a percentage fee or a fixed amount.

Pennsylvania

As of June 27, the Pennsylvania House of Representatives is considering a bill to bar interchange fees on sales tax when merchants accept credit or debit cards for payment.

House Bill 2394 aims to lower credit card swipe fees by eliminating their application to the state sales tax. Similar legislation has been introduced in more than a dozen other states.

"What has happened in Pennsylvania and Illinois would create credit card chaos," Richard Hunt, executive director of the Electronic Payments Coalition trade group lobbying against the bill, told Politico. "It would be an operational nightmare."

Bottom line

As of July, proponents have continuously failed to advance the Credit Card Competition Act, most recently via the fiscal year 2024 spending bill. Still, they will no doubt keep trying.

"Similar bills have been introduced — and rejected — in nearly 30 states. These experimental bills have not been tried anywhere else in the world and will upend the payment system in the U.S.," said Nick Simpson, managing director at the Electronic Payments Coalition. "Because this has never been done, it is hard to say how it will exactly impact reward programs. It would most likely not have the same potential to eliminate these programs like the Durbin-Marshall bill would, but it could weaken rewards programs and will certainly result in the loss of convenience and privacy for consumers."

This type of legislation has the potential to severely hit consumers' rewards, so TPG has been campaigning hard against this bill. The proposed national legislation would likely limit consumers' ability to collect (and redeem) points and miles toward travel or earn cash back that can offset some of their everyday spending.

Related reading:

• Capital One-Discover merger: Here's what it means for consumers and the Credit Card Competition Act
• Here are the best credit card welcome offers currently available
• 7 things to understand about credit before applying for a new card
• How to apply for a credit card
• What is APR on a credit card?
• How to check your credit score for free