A new analysis of Illinois' Interchange Fee Prohibition Act finds that the state's restrictions on payment card fees will likely deliver the biggest gains to large national retailers like Walmart, Amazon, and Home Depot while leaving consumers, community banks, and small businesses worse off. The paper, published by the Competitive Enterprise Institute on June 22, 2026, examines what policymakers can learn from previous efforts to cap interchange fees—the charges paid by a merchant's acquiring bank to a cardholder's issuing bank whenever a debit or credit card is used. The report's central conclusion: interchange fee restrictions don't work as broad consumer protection measures and instead shift value toward the largest retailers.
The analysis identifies three main consequences of the Illinois law. First, consumers typically won't receive the promised benefits and are likely to see fewer services, reduced rewards, and higher costs on other financial services. Second, financial institutions will bear significant compliance requirements, operational complexities, and transaction-processing challenges, with community banks and credit unions facing disproportionate costs compared to large institutions. Third, while the law is marketed as helping merchants broadly, the largest gains will flow to high-volume national chains, and many small businesses will see any gross savings offset by compliance and implementation costs—resulting in little net benefit or even a net loss.
According to the report's author, Steve Swedberg, evidence from past interchange fee restrictions offers little reason to expect a different outcome for Illinois consumers. The report finds that interchange fees help support the payment systems that make card transactions secure, convenient, and efficient, and when lawmakers restrict those fees, the cuts ripple through the financial system in ways that hurt everyday cardholders. Swedberg writes that in more severe cases, the pressures created by the law could make continued participation in card networks financially unsustainable for smaller institutions.
The reason consumers lose out comes down to how card payment systems are funded. Interchange fees help banks cover the costs of providing card services, fraud protection, rewards programs, and the infrastructure that makes electronic payments work smoothly. When those fees are capped by law, banks typically respond by cutting services, reducing rewards, and raising fees elsewhere to make up the difference. Community banks and credit unions, which operate on thinner margins than national banks, face a particularly tough choice: absorb costs they can't afford or stop offering certain card products altogether. Meanwhile, large retailers pocket the savings from lower interchange fees without passing them along to shoppers, because they face no requirement to do so.
The report concludes that policymakers in Illinois and elsewhere should pause before adopting similar restrictions. Swedberg argues that interchange fee caps fail to function as consumer protection and instead shift value toward the largest retailers while leaving consumers, community financial institutions, and smaller businesses to absorb the costs. The bottom line: Illinois' well-intentioned law is poised to deliver exactly the opposite of what it promises.