What Do the Illini Gain With IL’s Attacks on Credit Cards?

Credit cards are used by billions of consumers at billions of businesses precisely because buyer and seller alike gain so much from their existence. Consumers can purchase what they want when they want it, and businesses can concentrate on getting customers what they want when they want it, all while outsourcing the financial aspects of transactions to credit card providers.

Which is why new legislation from the Land of Lincoln, The Illinois Interchange Fee Prohibition Act (H.B. 4951), is so puzzling. At present, credit card providers receive a roughly 2 percent fee on each card purchase, and the swipe fee pays credit card companies for the processing and financing of transactions, fraud prevention on those transactions, along with rewards programs for users of the cards. The aforementioned legislation exempts taxes and tips from each swipe.

Hopefully from this errant legislation readers can more clearly see why credit cards are so popular with customers and businesses to begin with: so much financing and paperwork related to that financing outsourced to others, crucial fraud protection whereby credit card providers do the worrying about customers they most often do not know for the businesses, not to mention the rewards (think airline miles, cash back offers, airport lounge usage, etc.) that accrue to users of the cards.

Despite this, Illinois legislators are hard at work to make exchange a great deal more difficult. By exempting tips and tax from the swipe charge, they’re essentially legislating two different transactions per purchase. On its own, it’s easy to see the needless inconvenience foisted on consumer and businesses by the legislation. Yet there’s more.

The law quite explicitly demands that credit card providers finance tips and tax payments at no charge. If you’re thinking it’s a price control, you’re correct. Which means credit card providers will see their compensation for every transaction decline, and with that, their ability and willingness to provide the variety of services that are part and parcel of credit card usage. Don’t worry, it gets worse.

For instance, what about restaurant servers? Regarding the question, it will be said up front that yours truly pays tips in cash every time as is. The view here is that cash tips are the courteous thing to do. At the same time, not all of us carry cash at all times, which makes the convenience of credit-card financed tips just that. Absent the latter, it’s easy to see where customers short on cash will either stiff their servers with what they have, avoid the tip altogether with expediency in mind, or the customer will pay for the legislation through service charges levied on withdrawals at the nearest ATM, service charges added to the actual check, or both.

What about the businesses themselves? No doubt most will not want to inconvenience their customers with two separate transactions, but the cost of saving customers from inconvenience will be paid for through the purchase of new technology and systems meant to mitigate the actions of one state legislature. Sizable costs levied on businesses, costs that needlessly harm and complicate exchange for customers and businesses alike.

All to achieve what? The question rates routine ask in consideration yet again of how much more convenient and frequent business/customer exchanges are precisely because of credit cards. With the latter in mind, it’s difficult to see how anyone wins from this legislation that, for making life difficult for credit card providers will most certainly make it difficult for the customers they serve.

Author

  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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