Julian Morris on State Laws to Regulate Interchange Fees
ICLE Senior Scholar Julian Morris was quoted by CardRates.com in a story about his recent white paper examining state restrictions on interchange fees. You can read the full piece here.
In his white paper, “State Regulation of Interchange Fees,” Morris argues the law should not survive. Not only is it unconstitutional, he argues, but it would also place unprecedented administrative burdens and extra costs on issuers and merchants doing business in Illinois, especially smaller businesses, banks, credit unions, and financial technology companies.
The consequences will compound if more states follow the Illinois example and replace market dynamics with what Morris considers arbitrary political judgment — as some are currently considering.
Increased costs will reduce rewards and other consumer benefits from using cards. The resulting decline in card use will reduce overall sales volume and card usage as a percentage of sales, putting a damper on a system that has evolved over decades to incentivize the maximum number of consumers and merchants to participate.
The court will likely rule on the legislation before the close of 2024. No matter how it rules, Morris’s white paper stands as a justification for continued vigilance against antimarket legislative action related to the card payment system.
“Illinois is the first place anywhere in the world to have attempted to impose this carve-out for interchange fees on sales tax and tips,” Morris said. “Why would a state government want to do something that ends up distorting the cost basis for transactions?”