ICLE Written Testimony to Massachusetts Future of Payments Commission
I. Introduction and Summary
The International Center for Law & Economics (ICLE) submits this written testimony to the Special Legislative Commission to Study the Future of Payments and Sales Transactions by Credit Card and the Impacts for Small Businesses. We draw on economic scholarship examining payment-card markets, interchange fees, and the effects of regulating them.
ICLE is a nonprofit, nonpartisan research center that applies law & economics to public-policy questions, with a focus on consumer welfare. This testimony draws substantially from ICLE’s white paper, “Regulating State Interchange Fees: Evaluating the Likely Effects of the IFPA,”[1] related research,[2] and comments submitted to the Office of the Comptroller of the Currency and the National Credit Union Administration.[3]
We examine the likely effects of a Massachusetts law modeled on the Illinois Interchange Fee Prohibition Act, which bars interchange fees on the portions of transactions attributable to sales taxes and gratuities. Such a law would disrupt the pricing structure of a two-sided payment-card market, impose substantial compliance costs, reduce rewards and other consumer benefits, and likely raise account fees and borrowing costs. It would also burden national payment systems with state-specific rules, distort competition among payment networks, and conflict with federal law governing federally chartered financial institutions.
The claimed benefits are limited and uncertain. The economic, operational, and legal costs are substantial.
A. Interchange Fees Balance a Two-Sided Market
Payment-card networks operate as two-sided markets. They must attract both cardholders and merchants, and participation on either side makes the network more valuable to the other. Interchange fees—paid by a merchant’s bank to the cardholder’s issuing bank—help balance those two sides.
Those fees fund more than the processing of a single transaction. They support fraud prevention, payment security, zero-liability protection, interest-free grace periods, purchase protection, travel insurance, and rewards programs. In Ohio v. American Express Co. (2018), the U.S. Supreme Court recognized this structure and explained that networks may charge merchants more so they can charge price-sensitive cardholders less.
Every payment method carries costs. Cash requires handling, storage, security, and reconciliation. Checks expose merchants to fraud and nonpayment. For many merchants, payment cards now offer the lowest-cost option.
Exempting taxes or gratuities from interchange fees would distort that pricing structure. The exemption would reduce compensation to issuing banks even though those portions of the transaction create the same fraud, security, authorization, and settlement costs as the rest of the purchase.
B. An IFPA-Style Law Would Raise Compliance Costs
A law modeled on the Illinois Interchange Fee Prohibition Act would create a costly two-track compliance system. Merchants could either transmit tax and gratuity data during payment authorization or seek rebates after interchange fees had already been collected. Both methods would impose substantial technological, operational, and compliance costs on payment networks, processors, merchants, and financial institutions.
Compliance would require far more than simply removing fees from taxes and tips. Payment systems would need to identify Massachusetts sales taxes and gratuities accurately, revise authorization and settlement messages, change clearing systems so fees apply only to permitted amounts, and create new recordkeeping and dispute-resolution procedures for rebate claims. Variations by product and locality would make those changes harder.
The federal district court reviewing the Illinois law called the compliance costs “undeniable” and potentially “staggering,” noting that the necessary technical capabilities do not yet exist. The Office of the Comptroller of the Currency estimated that annual compliance costs could exceed $300 million. The National Credit Union Administration described the system as “complex and potentially unworkable.”
Smaller Massachusetts merchants would bear a disproportionate share of those costs because many would have to rely on a labor-intensive manual rebate process. Some small retailers that do not collect gratuities could even face higher total payment-processing costs.
C. Consumers Would Bear the Cost
Exempting taxes and gratuities from interchange fees could reduce revenue by roughly 0.1% of transaction value on purchases at Massachusetts merchants. With state retail sales likely exceeding $160 billion in 2026, annual losses could approach $160 million.
Experience under the Durbin Amendment, which capped debit-card interchange fees in the United States, and similar rules in Australia and the European Union shows how issuers are likely to respond:
- Reduced rewards and benefits. After interchange-fee regulation in the United States, Australia, and the European Union, issuers cut rewards programs and cardholder benefits. Massachusetts-based issuers would face the greatest pressure because their customers are concentrated in the state, leaving fewer opportunities to spread the losses. For consumers, reduced rewards function much like a price increase.
- Higher card and account fees. Australian banks raised average annual credit-card fees by roughly 50% after interchange regulation. After the Durbin Amendment, U.S. banks increased monthly account fees and minimum-balance requirements for free checking. Federal Reserve economists found that these changes disproportionately harmed lower-income households and increased the number of unbanked and underbanked consumers. Massachusetts should expect similar effects.
- Higher borrowing costs. After the European Union capped interchange fees, the gap between central-bank rates and credit-card annual percentage rates widened. Lower interchange revenue would put upward pressure on borrowing costs in Massachusetts, especially for higher-risk borrowers.
Merchants, meanwhile, pass through little, if any, of their interchange savings through lower retail prices. Once compliance costs are included, many merchants may see no net savings at all. The largest merchants would capture most of the benefits, while consumers would bear much of the cost.
D. A State Mandate Would Disrupt National Payments
Because payment networks operate nationally, a Massachusetts interchange-fee law would impose costs beyond the Commonwealth. Issuers and networks could spread those costs through nationwide reductions in rewards or increases in fees, causing consumers elsewhere to subsidize large merchants operating in Massachusetts.
The problem would grow if other states adopted different rules. Payment networks would have to comply with multiple state-specific interchange regimes, increasing transaction costs, complicating national operations, and discouraging investment in new payment technologies. A patchwork of conflicting requirements could also undermine the uniform system that now allows payments to clear across state lines.
An Illinois-style law would also distort competition among payment networks. It would apply mainly to four-party networks such as Visa and Mastercard, while largely exempting three-party networks such as American Express and Discover. That distinction would burden functionally similar competitors differently without a sound economic basis.
E. Federal Law Preempts State Interchange-Fee Limits
The harms would grow as more states adopted similar laws. National payment systems would have to accommodate conflicting state-specific rules, forcing costly changes across the country. That patchwork would raise transaction costs, reduce efficiency, and discourage investment in new payment technologies.
Such laws also face serious constitutional and federal-preemption problems. In 2026, the Office of the Comptroller of the Currency concluded that the Illinois Interchange Fee Prohibition Act was preempted as applied to national banks and federal savings associations. The National Credit Union Administration reached the same conclusion for federal credit unions, reaffirming those institutions’ federal authority to charge interchange fees.[4]
A state law that prevents federally chartered institutions from recovering costs and funding cardholder services would conflict with those federal powers. That conflict would remain even if the law formally regulated networks or processors rather than banks or credit unions. Payment-card systems operate as integrated platforms, so obligations imposed on one participant affect the others.
Limiting the law to entities not covered by federal preemption would produce an incoherent system. Some participants in the same transaction could recover interchange fees, while others could not, depending on their charter or role in the payment process.
II. Interchange Fees Sustain Modern Payment Systems
Electronic payments are indispensable to modern commerce. During the COVID-19 pandemic, they helped sustain the U.S. and global economies as cash use and face-to-face transactions fell sharply.[5] Studies show that payment cards, whether used as physical cards or through mobile wallets, offer substantial advantages over cash for most transactions.[6]
Consumers benefit from convenience, stronger fraud protection, short-term liquidity through interest-free grace periods, and, in most cases, zero liability for unauthorized charges. Many cards also offer purchase protection, travel insurance, cashback, airline miles, hotel points, and other rewards. These benefits help explain why consumers increasingly prefer cards to cash or checks.
FIGURE 1: Payment-Instrument Share as a Proportion of Payments
SOURCE: Federal Reserve Board [7]
Merchants also benefit from electronic payments. Cards generally speed checkout, increase sales, and reduce the theft and fraud risks associated with cash.[8] When Chicago-based quick-service chain Epic Burger stopped accepting cash in 2017, founder David Friedman cited faster transactions, improved safety, and fewer counting errors.[9] Mercedes-Benz Stadium in Atlanta reported shorter transaction times, higher per-capita spending, and lower operating costs after going cashless in 2018.[10] Restaurants and sports venues in Illinois and across the country have since followed.[11]
Payment systems succeed only when both consumers and merchants participate, and that participation depends on trust. Payment networks, issuing banks, acquiring banks, and processors invest billions of dollars in fraud prevention, cybersecurity, infrastructure, and system maintenance.[12] Consumers use cards because they value security, convenience, insurance, rewards, and related benefits. Issuing banks recover much of the cost of providing those services through interchange fees.[13]
Interchange fees are often described as transaction costs.[14] That description is incomplete. The fees help cover operating expenses such as fraud prevention, authorization, settlement, and network maintenance. They also finance cardholder benefits, including rewards, purchase protection, and short-term credit.
Every payment system imposes costs.[15] Cash must be printed, transported, secured, counted, and processed. Many of those costs remain hidden because governments subsidize currency production and distribution.[16] Checks carry their own costs and risks, including fraud, processing delays, and nonpayment. Legal rules requiring checks to clear at par also shift some costs to consumers and financial institutions.[17]
No payment system can endure unless merchants and consumers both receive benefits that exceed their costs.[18] Continued adoption of payment cards shows that both groups generally do.
Electronic payments differ from cash and checks mainly because the costs of older payment methods are less visible. Subsidies and legal rules often shift those costs away from merchants. That difference does not provide an economic basis for exempting taxes or gratuities from interchange fees. No comparable rule exempts portions of cash or check transactions from the costs of using those payment methods. The visibility of interchange fees does not justify selectively transferring payment-system costs away from merchants.
Economists call these transfers “cross-side subsidies.” One side of a two-sided market helps finance participation on the other.[19] Such arrangements are common. Advertisers subsidize newspapers, search engines, smartphone applications, and large language models. The economics literature has long recognized the role of cross-side subsidies, and the U.S. Supreme Court identified their importance in payment-card markets:
Sometimes indirect network effects require two-sided platforms to charge one side much more than the other. For two-sided platforms, “‘the [relative] price structure matters, and platforms must design it so as to bring both sides on board.’” The optimal price might require charging the side with more elastic demand a below-cost (or even negative) price. With credit cards, for example, networks often charge cardholders a lower fee than merchants because cardholders are more price sensitive. In fact, the network might well lose money on the cardholder side by offering rewards such as cash back, airline miles, or gift cards. The network can do this because increasing the number of cardholders increases the value of accepting the card to merchants and, thus, increases the number of merchants who accept it. Networks can then charge those merchants a fee for every transaction (typically a percentage of the purchase price). Striking the optimal balance of the prices charged on each side of the platform is essential for two-sided platforms to maximize the value of their services and to compete with their rivals.[20]
The Supreme Court’s discussion concerned American Express, a three-party payment-card network that combines network operations, card issuance, and acquiring within one company. The Illinois Interchange Fee Prohibition Act, by contrast, applies only to four-party networks, in which separate entities perform those functions. Only four-party networks use interchange fees because the issuing and acquiring institutions are distinct.
III. The Costs of Interchange Regulation
Several states have considered laws modeled on the Illinois Interchange Fee Prohibition Act, which exempts portions of payment-card transactions from interchange fees. Other jurisdictions have imposed broader interchange-fee caps and related regulations. Those experiences offer useful evidence about the likely effects of similar legislation in Massachusetts. The Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act provides the clearest U.S. example.
Before the Durbin Amendment, debit-card interchange revenue helped issuing banks fund debit rewards, free checking, and accounts with low minimum-balance requirements. After the Federal Reserve implemented Regulation II, many banks reduced or eliminated those benefits.
Federal Reserve economists found that the caps led covered banks to raise account fees, increase minimum-balance requirements, reduce access to free checking, and eliminate debit-card rewards.[21] Those changes fell most heavily on lower-income households and increased the number of unbanked and underbanked consumers.[22] Merchants, meanwhile, passed little of their savings through to consumers as lower retail prices.[23]
The same economic forces would apply to interchange regulation in Massachusetts. The Illinois law restricts interchange fees on sales taxes and gratuities across credit cards, debit cards, and general-use prepaid cards. It reaches issuers, payment-card networks, acquiring banks, and processors by prohibiting participants throughout the payment chain from charging or receiving interchange fees on those portions of a transaction.
Compliance would require substantial technological and operational changes. Issuers and payment networks would need to update information-technology systems and transaction-processing software to identify taxes and gratuities, revise authorization systems, and create tracking or rebate mechanisms for adjustments made after a transaction.[24]
The law also appears to spare three-party networks such as American Express and Discover because those networks do not use interchange fees. It therefore burdens four-party networks while favoring functionally similar competitors without a sound economic basis.
A Massachusetts law would require far more than simply turning off fees on taxes and tips. It would require systemwide changes to the nation’s electronic-payment infrastructure. At a minimum, payment-card networks and processors would need to:
- Identify Massachusetts sales taxes and gratuities accurately, including amounts that vary by product and locality;
- Revise authorization and settlement messages to transmit that information;
- Change clearing and settlement systems so interchange fees apply only to permitted amounts; and
- Maintain recordkeeping and dispute-resolution systems for merchant reimbursement claims
Even while ruling at summary judgment that the Illinois law’s interchange-fee provision was not preempted, the federal district court acknowledged its extraordinary operational demands. The court observed that compliance would likely require technical capabilities that do “not currently exist, but could possibly exist through additional investment.”[25] It also described the resulting costs as “undeniable” and potentially “staggering.”[26] The Office of the Comptroller of the Currency estimated that annual compliance costs could exceed $300 million.[27] The National Credit Union Administration likewise described the law as “complex and potentially unworkable,” with enormous potential liability.[28] Massachusetts should expect similar costs and complications.
Smaller merchants would face particular burdens because many would need to use a labor-intensive rebate process. The loss of interchange revenue would impose an additional, and likely larger, cost. Interchange fees fund rewards, fraud prevention, and other cardholder benefits. Exempting taxes and gratuities could reduce issuer revenue by roughly 0.1% of transaction value on purchases involving Massachusetts merchants.[29] For large issuers, the annual losses could reach millions of dollars.[30]
Issuers inside and outside Massachusetts would likely respond in several ways.
A. Reduced Rewards and Cardholder Benefits
Issuers would likely respond first by reducing cardholder rewards and benefits. Credit-card issuers finance rewards programs largely through interchange revenue. If a Massachusetts law reduced that revenue by 10% or more on affected transactions, issuers would have less money to support existing programs.
Experience under the Durbin Amendment, Reserve Bank of Australia rules, and the European Union’s Interchange Fee Regulation points in the same direction. After those measures took effect, issuers reduced rewards, often across broad portions of their card portfolios.[31]
Issuers could also cut travel insurance, purchase protection, and other benefits funded by interchange revenue. Australian and European issuers took similar steps after interchange regulation.[32]
Nationwide issuers might try to confine some reductions to Massachusetts cardholders. Massachusetts-based issuers would have less flexibility because more of their customers and transactions are concentrated in the state. Any nationwide reduction, meanwhile, would shift part of the cost to cardholders outside Massachusetts.
Issuers could create Massachusetts-specific rewards programs instead, but that option would carry substantial administrative costs. It could require changes to cardholder agreements, contracts with airline and hotel partners, customer communications, and account-management systems.
A more likely response would be a modest nationwide reduction in rewards. An issuer offering 2% cashback, for example, might reduce that rate to 1.95% or slightly devalue points across its portfolio. For consumers, lower rewards function as a price increase.
Research consistently finds that consumers bear most of the cost of interchange-fee restrictions, while merchants pass through little, if any, of their savings through lower prices. Once compliance costs are included, many merchants may realize no net savings to pass along.[33]
Nationwide changes would still require amendments to cardholder and partner agreements, but they would be easier to administer than separate Massachusetts programs. They would also spread the costs across cardholders nationwide, causing consumers in other states to subsidize large merchants operating in Massachusetts.
The pressure to reduce rewards and benefits would grow if other states adopted similar laws. Even if Massachusetts acted alone, issuers could still cut benefits for Massachusetts customers or for transaction categories with unusually large tax components, such as gasoline purchases subject to substantial fuel taxes.
B. Higher Card and Account Fees
Issuers have often responded to interchange-fee caps by raising cardholder fees. In Australia, banks increased average annual credit-card fees by roughly 50% after interchange regulation.[34] Massachusetts consumers could face similar changes. Cards that now carry no annual fee could begin charging one, while cards with more generous rewards could become more expensive.
Debit cards and checking accounts could also cost more. After the Durbin Amendment, some covered banks initially proposed monthly debit-card fees to replace lost interchange revenue. Following public backlash, many instead raised monthly account fees and increased minimum-balance requirements for free checking.[35]
Those changes fall hardest on lower-income consumers, who are less likely to maintain large balances and more likely to depend on low-cost banking products. Experience with interchange regulation shows that lower interchange revenue can reduce access to affordable accounts and increase the number of unbanked and underbanked households.
The effects could extend beyond Massachusetts. If issuers raised fees across broader customer portfolios rather than creating state-specific pricing, consumers nationwide would bear part of the cost.
Acquiring banks and payment processors could also raise their fees to cover lost revenue and higher compliance costs, especially for smaller merchants that rely on the rebate process. Many merchants could therefore realize little, if any, net savings. Some small retailers that do not collect gratuities could even face higher total payment-processing costs. ICLE has previously documented that merchants saved less than expected after the Durbin Amendment in part because acquirers increased their own fees.[36]
C. Higher Borrowing Costs
Issuers could also respond by raising borrowing costs, including annual percentage rates (APRs). After the European Union adopted the Interchange Fee Regulation, which capped interchange fees at 0.2% for debit transactions and 0.3% for credit transactions, the gap between the European Central Bank’s policy rate and credit-card APRs widened.[37]
A Massachusetts law alone might not produce a measurable increase in borrowing rates. Even so, lower interchange revenue would put upward pressure on those rates, especially for higher-risk borrowers. Consumers would bear the resulting costs.
If issuers raised rates across broader card portfolios rather than limiting the changes to Massachusetts accounts, consumers outside the state would bear part of the burden as well.
D. A Patchwork of State Interchange Rules
Payment-card networks generally operate under uniform nationwide interchange-fee schedules. A Massachusetts law modeled on the Illinois Interchange Fee Prohibition Act would disrupt that system by requiring separate treatment for sales taxes, gratuities, or other portions of covered transactions.
Networks and processors would need to identify covered transactions, track state-specific requirements, and apply different interchange calculations based on jurisdiction and transaction type. Those changes would increase operational complexity, administrative burdens, and compliance costs.
The problem would grow as more states adopted different rules. A widening patchwork of state requirements would erode the efficiency and uniformity of the national payments system. If enough states imposed conflicting obligations, the current nationwide interchange framework could become unworkable.
E. Higher Interchange Fees Nationwide
Payment-card networks could also raise default multilateral interchange-fee schedules nationwide to offset losses on Massachusetts transactions. That response would likely take the form of modest increases across the country.
Those increases would shift costs to merchants and consumers outside Massachusetts. Out-of-state merchants would pay higher interchange fees, while consumers could face higher retail prices, lower rewards, or other pricing changes.
A Massachusetts law could therefore spread its costs nationwide while concentrating the gains among merchants operating in the Commonwealth.
IV. Federal Law Preempts State Interchange Limits
A law that exempts portions of a transaction from interchange fees imposes a price control on a fee structure that payment networks continually adjust to balance merchants and consumers. Disrupting that balance reduces the value of payment cards to consumers, which can reduce card use and, in turn, diminish the value of the network to merchants. It also conflicts with the federally authorized powers of national banks, federal savings associations, and federal credit unions.
The National Credit Union Administration recently concluded that the Illinois Interchange Fee Prohibition Act’s interchange-fee provision is preempted as applied to federal credit unions.[38] Its rule states explicitly that federal credit unions may charge noninterest fees related to permissible activities, including “interchange fees from credit and debit operations.”[39] The Office of the Comptroller of the Currency reached the same conclusion for national banks and federal savings associations.[40]
Massachusetts therefore has little reason to enact a similar law that federal rules would preempt in substantial part. Payment-card networks operate integrated systems that establish interchange fees, participation requirements, authorization protocols, clearing and settlement rules, and liability standards. They connect merchants and cardholders through issuing banks, acquiring banks, and processors while transmitting the information needed to complete each transaction. Issuing banks use interchange revenue to process payments and fund services for cardholders and deposit customers.
The NCUA and OCC rules recognize that these networks operate as coordinated platforms rather than as a collection of isolated contracts. Interchange fees help balance participation on both sides of the network. Exempting taxes and gratuities would shift costs toward consumers and require operational changes across national and global payment systems.
That structure bears directly on federal preemption. A state law that prevents federally chartered institutions from recovering costs and funding cardholder services conflicts with their federal powers. The conflict remains even if the law formally regulates payment networks, processors, or transaction components rather than the financial institutions themselves.
Limiting such a law to entities outside the scope of federal preemption would produce an incoherent result. Networks and processors would still incur substantial compliance costs, merchants would receive little or no savings, and consumers would face higher banking costs.
V. Conclusion
Massachusetts should decline to adopt an Illinois-style interchange-fee law. The evidence from the Durbin Amendment, Australia, and the European Union shows that interchange regulation often reduces rewards, raises account fees and borrowing costs, and delivers little in lower retail prices.
A Massachusetts law would also impose substantial compliance costs on merchants, processors, payment networks, and financial institutions. It would disrupt a national payment system built on uniform rules, favor some network models over others, and shift part of the burden to consumers and merchants outside the Commonwealth.
Federal regulators have also concluded that the Illinois law is preempted as applied to national banks, federal savings associations, and federal credit unions. A Massachusetts version would therefore face serious legal limits while still forcing costly operational changes across the payment system.
The likely gains are narrow and uncertain. The likely costs—to consumers, small merchants, financial institutions, and the national payments system—are broad and substantial.
[1] Julian Morris & Ben Sperry, Regulating State Interchange Fees: Evaluating the Likely Effects of the IFPA, Int’l Ctr. L. & Econ. (July 7, 2025), https://laweconcenter.org/wp-content/uploads/2025/07/IFPA-Paper-2025.pdf.
[2] See, e.g., Ben Sperry & Julian Morris, Half a Swipe, Whole Lot of Mess: Platform Economics and the Interchange Fee Cases, Truth on the Mkt. (Feb. 26, 2026), https://truthonthemarket.com/2026/02/26/half-a-swipe-whole-lot-of-mess-platform-economics-and-the-interchange-fee-cases; Julian Morris, State Regulation of Interchange Fees, Int’l Ctr. L. & Econ. (Nov. 15, 2024), https://laweconcenter.org/resources/state-regulation-of-interchange-fees.
[3] Int’l Ctr. L. & Econ., Comments to the Office of the Comptroller of the Currency on Preempting the Illinois Interchange Fee Prohibition Act (May 28, 2026), https://laweconcenter.org/resources/icle-comments-to-the-occ-on-preempting-the-illinois-interchange-fee-prohibition-act; Int’l Ctr. L. & Econ., Comments to the National Credit Union Administration on Preemption of Federal Credit Unions’ Non-Interest Charges and Fees (July 9, 2026), https://laweconcenter.org/resources/icle-comments-on-preemption-of-federal-credit-unions-non-interest-charges-and-fees.
[4] See National Bank Non-Interest Charges and Fees Interim Final Rule, 91 Fed. Reg. 22,989 (Apr. 29, 2026), https://www.govinfo.gov/content/pkg/FR-2026-04-29/pdf/2026-08328.pdf [hereinafter OCC Rule]; Preemption—Federal Credit Union Non-Interest Charges and Fees, 91 Fed. Reg. 34,725 (June 9, 2026), https://www.govinfo.gov/content/pkg/FR-2026-06-09/pdf/2026-11559.pdf [hereinafter NCUA Rule].
[5] See, e.g., Julian Morris, Todd J. Zywicki & Geoffrey A. Manne, The Effects of Price Controls on Payment-Card Interchange Fees: A Review and Update, Int’l Ctr. L. & Econ. (Mar. 4, 2022), https://laweconcenter.org/wp-content/uploads/2022/03/Payments-2021-Lit-Review.pdf.
[6] Julian Morris & Ben Sperry, The Cost of Payments: A Review, Int’l Ctr. L. & Econ. (Aug. 28, 2024), https://laweconcenter.org/resources/the-cost-of-payments-a-review.
[7] Berhan Bayeh et al., 2026 Diary of Consumer Payment Choice, Fed. Rsrv. (2026), https://www.frbservices.org/news/research/2026-findings-diary-consumer-payment-choice.
[8] Morris & Sperry, The Cost of Payments, supra note 6; Claire Wang, Cash Me If You Can: The Impacts of Cashless Businesses on Retailers, Consumers, and Cash Use, Cash Prod. Off., Fed. Rsrv. Sys. (2019), https://www.frbsf.org/wp-content/uploads/sites/7/Cash-Me-If-You-Can-August2019.pdf.
[9] Daniel Gerzina, Epic Burger Is Now Cashless, Tamale Spaceship Closes Wicker Park Restaurant, More Intel, Eater Chi. (June 21, 2017), https://chicago.eater.com/2017/6/21/15846364/epic-burger-cashless-tamale-spaceship-closed-wicker-park-restaurant-am-intel.
[10] Id.
[11] See Morris & Sperry, The Cost of Payments, supra note 6.
[12] See Julian Morris, The Hidden Wealth of Payment Cards: How Innovations in Payments Transform Society, Int’l Ctr. L. & Econ. (Dec. 19, 2024), https://laweconcenter.org/resources/the-hidden-wealth-of-payment-cards-how-innovations-in-payments-transform-society.
[13] See Todd J. Zywicki, The Economics of Payment Card Interchange Fees and the Limits of Regulation, Int’l Ctr. L. & Econ. (June 2, 2010), https://laweconcenter.org/images/articles/zywicki_interchange.pdf.
[14] See Aaron Klein et al., How Better Payment Systems Can Improve Public Transportation, Brookings Ctr. Regul. Mkts. (2023), https://www.brookings.edu/wp-content/uploads/2023/01/20230109_CRM_Klein_TransitPayments_final1.pdf.
[15] See Consumer Fin. Prot. Bureau, Taskforce on Consumer Financial Law 586–88 (2021).
[16] One frequently cited estimate found that a transition to a cashless economy could increase annual gross domestic product by roughly 1% in advanced economies and by as much as 3% in developing economies. See Markus Massi, Godfrey Sullivan, Michael Strauß & Mohammad Khan, How Cashless Payments Help Economies Grow, Bos. Consulting Grp. (May 28, 2019), https://www.bcg.com/publications/2019/cashless-payments-help-economies-grow.
[17] The shift from checks to electronic payments financed by interchange fees helped expand free checking accounts and reduce monthly maintenance fees as debit cards became more widely used.
[18] A consumer may choose to pay in Bitcoin and bear the associated costs. By contrast, a merchant that declines to accept Bitcoin incurs no comparable costs.
[19] See Morris, Hidden Wealth of Payment Cards, supra note 12.
[20] Ohio v. Am. Express Co., 585 U.S. 529, 536–37 (2018) (internal citations omitted).
[21] See, e.g., Morris, Zywicki & Manne, supra note 5; Mark D. Manuszak & Krzysztof Wozniak, The Impact of Price Controls in Two-Sided Markets: Evidence from U.S. Debit Card Interchange Fee Regulation (Fin. & Econ. Discussion Series No. 2017-074, Fed. Rsrv., July 2017), https://www.federalreserve.gov/econres/feds/the-impact-of-price-controls-in-two-sided-markets-evidence-from-us-debit-card-interchange-fee-regulation.htm; Benjamin S. Kay, Mark D. Manuszak & Cindy M. Vojtech, Bank Profitability and Debit Card Interchange Regulation: Bank Responses to the Durbin Amendment (Fin. & Econ. Discussion Series No. 2014-77, Fed. Rsrv., Sept. 2014), https://www.federalreserve.gov/econres/feds/bank-profitability-and-debit-card-interchange-regulation-bank-responses-to-the-durbin-amendment.htm.
[22] See Geoffrey A. Manne, Julian Morris & Todd J. Zywicki, Unreasonable and Disproportionate: How the Durbin Amendment Harms Poorer Americans and Small Businesses, Int’l Ctr. L. & Econ. (Apr. 25, 2017), https://laweconcenter.org/wp-content/uploads/2017/08/icledurbin_update_2017_final-1.pdf; Vladimir Mukharlyamov & Natasha Sarin, Price Regulation in Two-Sided Markets: Empirical Evidence from Debit Cards, 172 J. Fin. Econ. 104090 (2025), https://www.sciencedirect.com/science/article/pii/S0304405X25001023.
[23] See, e.g., Zhu Wang, Scarlett Schwartz & Neil Mitchell, The Impact of the Durbin Amendment on Merchants: A Survey Study, 100 Econ. Q. 183 (2014); Mukharlyamov & Sarin, supra note 22, at 10 (“Durbin-induced interchange fee savings for gas merchants were too small for their pass-through—even if full—to be discerned with statistical significance.”).
[24] Morris, Hidden Wealth of Payment Cards, supra note 12, at 19.
[25] See Illinois Bankers Ass’n v. Raoul, 819 F. Supp. 3d 882, 904 (N.D. Ill. 2026), vacated and remanded, 2026 WL 1291987 (7th Cir. 2026).
[26] Id.; see also id. at 896 (noting evidence that complying with the Illinois Interchange Fee Prohibition Act “would be extraordinarily expensive and will drive institutions out of the market”).
[27] OCC Rule, supra note 4, at 23,156.
[28] NCUA Rule, supra note 4, at 34,729 (“Despite the complex and potentially unworkable nature of the interchange fee prohibition, the IFPA exposes FCUs to penalties of $1,000 per transaction for failing to comply with its provisions. Given the upwards of 6.5 billion payment card transactions that occur yearly in Illinois, participants in the payment card [market] could be subject to as much as $6.5 trillion in liability per year for non-compliance with IFPA.”).
[29] See Tax Found., Taxes in Massachusetts, https://taxfoundation.org/location/massachusetts (last visited July 15, 2026) (estimating Massachusetts’s average combined state and local sales tax rate at 6.25%. Assuming gratuities average 7% of sales, taxes and tips account for roughly 10% of a typical transaction. At a 1% interchange fee, exempting taxes and tips would reduce interchange-fee revenue by about 0.1% of the transaction value).
[30] According to the U.S. Census Bureau, Massachusetts retail sales totaled roughly $153 billion in 2022. See U.S. Census Bur., QuickFacts: Massachusetts, https://www.census.gov/quickfacts/fact/table/MA,US (last visited July 15, 2026). Assuming modest growth, retail sales likely exceeded $160 billion in 2026. Interchange-fee revenue attributable to sales taxes and gratuities could therefore approach $160 million annually. For issuers with market shares of 4% or more, that would imply annual revenue losses of at least $6.4 million.
[31] See Morris, Zywicki & Manne, supra note 5.
[32] Id.; Iris Chan et al., The Personal Credit Card Market in Australia: Pricing Over the Past Decade, Rsrv. Bank Austl. (2012), https://www.rba.gov.au/publications/bulletin/2012/mar/pdf/bu-0312-7.pdf.
[33] For example, after enactment of the Durbin Amendment, many smaller merchants saw no price reductions because payment networks eliminated special discounts for small merchants and low-dollar transactions while acquirer fees increased. See Manne, Morris & Zywicki, supra note 22; see also Robert Shapiro & Jerome Davis, The Unanticipated Costs and Consequences of Federal Reserve Regulation of Debit Card Interchange Fees 4, Progressive Pol’y Inst. (2025), https://www.progressivepolicy.org/wp-content/uploads/2025/12/PPI_The-Unanticipated-Costs-and-Consequences-of-Federal-Reserve-Regulation-of-Debit-Card-Interchange-Fees_V3.pdf.
[34] Todd J. Zywicki et al., Price Controls on Payment Card Interchange Fees: The U.S. Experience (Geo. Mason L. & Econ. Rsch. Paper No. 14-18, 2014), https://www.law.gmu.edu/pubs/papers/14_18.
[35] Id.; see also Manne, Morris & Zywicki, supra note 22.
[36] See Zywicki et al., supra note 34; Manne, Morris & Zywicki, supra note 22.
[37] See Julian Morris, The Credit Card Competition Act’s Potential Effects on Airline Co-Branded Cards, Airlines, and Consumers, Int’l Ctr. L. & Econ. (Nov. 17, 2023), https://laweconcenter.org/resources/the-credit-card-competition-acts-potential-effects-on-airline-co-branded-cards-airlines-and-consumers.
[38] NCUA Rule, supra note 4, at 34,727.
[39] Id. at 34,728.
[40] OCC Rule, supra note 4, at 23,154.