A Washington D.C. bill is the latest to hit back at credit card swipe fees. The Fair Swipe Act of 2025, introduced by D.C. Councilmember Charles Allen, would prevent banks and credit card companies from collecting processing fees on sales tax and gratuities—charges that businesses don’t even keep.
Increasingly, Americans like reaching for plastic to pay bills. A study by the Federal Reserve Bank of Atlanta indicated that, as a share of all payments by number—including bills, purchases, and person-to-person (P2P) payments, made in person or remotely—more were made by credit card (32%) than other forms of payment (debit cards came in second at 30%).
While shoppers and bill payers love the convenience of credit cards, they aren’t fans of the associated fees and costs. Neither are businesses. According to National Retail Federation Senior Vice President for Government Relations David French, swipe fees are one of retailers’ highest operating expenses. Those fees hit a record $172 billion in 2023, French says, driving up consumer prices by over $1,100 a year for the average family.
Unwinding those costs can be complicated. A lot happens after a swipe of a credit card, resulting in processing charges and interchange fees. Interchange fees, sometimes known as swipe fees, are charged to merchants by payment card networks, like Visa or Mastercard, for processing transactions. These fees are a typically a percentage of the transaction amount (often in addition to a fixed fee) and can range between 1.5% and 3.5% per transaction—the amount can vary, depending on the circumstances including the amount of kind of transaction.
Notably, two companies, Visa and Mastercard, control over 80% of the U.S. credit card market and they are benefiting from the increase in card use. In 2024, Mastercard reported a net income of $12.9 billion, a 15% increase from 2023. Visa reported a net income of $19.7 billion, a 16% increase from 2023.
The Fair Swipe Act
Credit card fees are typically tacked on to the total transaction amount, including charges for items that don’t benefit the business directly—like tips and sales taxes. The Fair Swipe Act would eliminate the interchange fee portion of credit card fees on tips and sales tax in D.C.
Allen said about the bill, “There is no reason banks and large companies like Visa and Mastercard should profit from the required collection of sales tax and tips. They don’t help the business remit the sales tax or distribute the tip to the employee. They’re just a middleman driving up the cost of dinner or a coffee.”
According to Eric Cohen, CEO and Founder of Merchant Advocate, a Hoboken, New Jersey-based business focused on the payment processing industry, it’s not quite that simple. “Theoretically, the bill would eliminate the portion of swipe fees merchants currently pay on taxes and tips,” he explains. That would likely be an easy step for businesses who separate out items, like taxes, when processing transactions. But, Cohen says, “A small merchant using a credit card machine that’s not properly integrated would need to reprogram their machine to ensure tax is listed separately. This would require employee training to enter the base amount and tax separately, which could lead to user error and necessitate additional staff time, ultimately adding to business costs.”
Could that still result in a win for consumers? Maybe.
Credit card fees used to be largely absorbed by the merchants as the cost of doing business. However, post-pandemic, there has been a significant increase in merchants passing those fees along to customers. There has also been a growing discomfort with the amount of fees that consumers are asked to shoulder. If credit card fees were reduced—even a little—that should mean that consumers would see smaller bills at the cash register.
The bill has gathered strong momentum, according to Cohen, including from local restaurants and retailers. Proponents have even formed an advocacy group—The Fair SWIPE (Small Businesses Working for Interchange Payment Equity) Coalition. The bill also has support from the Restaurant Association Metropolitan Washington (RAMW). Shawn Townsend, President and CEO of the RAMW, joined Allen to introduce the Fair Swipe Act to the public. RAMW estimates a full-service restaurant could save around $14,500 per year just by excluding tax and tips from the swipe fee.
Not everyone is a fan of the legislation. Cohen noted that the Electronic Payment Coalition, which represents credit card companies, has referred to the legislation as “bad policy.” And the MD/DC Credit Union Association has promised to “vigorously oppose as it moves through the legislative process.”
In addition to compliance costs, those who oppose the bill also point to the stiff penalties for noncompliance—$1,000 per electronic payment transaction.
Similar Bills
There are similar bills in other states, including the Illinois Interchange Fee Prohibition Act which was slated to go into effect July 1, 2025. However, on December 20, 2024, Judge Virginia Kendall of the U.S. District Court for the Northern District of Illinois, Eastern Division, issued a preliminary injunction stopping enforcement in part. In her Order, Judge Kendall
determined that parts of the IFPA, as written, were likely preempted by federal law. The Court initially reserved judgment on two of the claims and requested supplemental briefing from the parties. In a February 6, 2025, opinion, Kendall denied the a motion for preliminary injunction as it applied to federal credit unions, but granted it with respect to out-of-state state banks due to existing national banking laws. (The case is Illinois Bankers Association v. Raoul.)
The D.C. bill includes a non-severability clause which states that if any provision is held to be unconstitutional, then all provisions of the act are invalid. That provision, Allen noted in his introductory letter is intended to ensure that “key provisions do not solely burden District-chartered banks should the legislation be challenged in court,” and is likely a nod to the Illinois litigation.
Other states have introduced similar legislation, including Colorado and Kansas. Cohen says that as more businesses and consumers push back against high processing fees, additional states may follow.
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