Federal ruling fuels Iowa push to curb credit card "swipe fees"
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Iowa business advocates who have long pushed to rein in credit card "swipe fees" say momentum is building after a federal judge last week upheld an Illinois law banning them on sales taxes and tips.
Why it matters: The Illinois ruling fuels the Iowa effort and would be significant for the state's hospitality sector, which shed 3,800 jobs last year, Jessica Dunker, president and CEO of the Iowa Restaurant Association, tells Axios.
Catch up quick: Every time a customer pays with a card, restaurants and other small businesses pay roughly 2%-3% of the total to the credit card company, including the amounts added to the bill for tax and tips.
- Hospitality leaders argue that the fees are unfair, especially the tax-related ones.
The other side: Swipe fees are intended to compensate banks and credit card companies for assuming the risk of fraud.
- State caps on them would harm economic growth, reduce jobs and outweigh merchant savings, according to the Iowa chapter of the research organization Common Sense Institute.
- Groups such as the Illinois Bankers Association, which challenged the law, argued that excluding certain costs would create an overly burdensome payment system, Capitol News Illinois reports.
State of play: Credit card networks and banks in Illinois have to exclude swipe fees from taxes and tips in the state by July 1.
- Illinois is the first state to restrict swipe fees, per the Capitol News.
Zoom in: Bills proposed in Iowa would prohibit swipe fees on state sales taxes. They are narrower in scope than the Illinois law, which also excludes tips from the charges.
- Card networks that fail to exclude Iowa tax would face a $1,000 fine per violation.
Stunning stat: Iowa restaurants pay an estimated $12 million a year in swipe fees on the tax portion of bills paid by credit cards, according to data from the Restaurant Association.
Reality check: Swipe fees on taxes are not a "make or break" issue for most restaurants, Paul Rottenberg, president of Orchestrate Hospitality, which manages multiple restaurants in DSM, tells Axios.
Yes, but: They contribute to overall costs, averaging about $1,800 per year for Iowa restaurants, a significant amount for some struggling eateries, Dunker said.
What we're watching: The outcome of an anticipated appeal in the Illinois case.