The IFPA’s Ripple Effect on B2B Debt Collection

The Illinois Interchange Fee Prohibition Act (IFPA) has been a focal point of financial and legal discussions, particularly after U.S. District Court Judge Virginia Kendall extended an injunction that partially exempts financial institutions chartered outside Illinois. However, Illinois-chartered banks, credit unions, and card networks remain subject to compliance. While supporters argue the law protects consumers from excessive swipe fees, opponents contend it fragments the payments system and complicates financial transactions.

The IFPA, scheduled to take effect on July 1, 2025, prohibits interchange fees on portions of transactions that include sales tax and tips. Instead, fees can only apply to the pre-tax purchase amount. Additionally, it caps merchant reimbursement for processing sales tax at $1,000 per month, replacing the previous 1.75% reimbursement rate. These regulations are set to apply to all transactions processed in Illinois.

Implications for the B2B Debt Collection Industry

1. Cash Flow Disruptions for Merchants and Creditors

B2B transactions often involve substantial sums, and changes in interchange fees can significantly impact cash flow for businesses. The new limitations on interchange fees and sales tax reimbursements may put additional financial strain on merchants, particularly small and mid-sized businesses that rely on credit transactions. If businesses experience cash flow issues, their ability to meet debt obligations may decline, increasing the volume of delinquent accounts handled by B2B debt collection agencies.

2. Increased Complexity in Payment Processing

The law’s impact on transaction fees could lead to inconsistencies in how payments are processed across different financial institutions. B2B transactions often involve multiple intermediaries, and a fragmented payments system may introduce operational inefficiencies, making it more difficult to track payments, verify charges, and reconcile outstanding debts. This could slow down debt collection efforts and increase disputes between creditors and debtors.

3. Potential for Higher Transaction Costs

While the IFPA aims to reduce swipe fees for merchants, the fragmented application of the law could lead financial institutions to increase costs in other areas to compensate for lost revenue. For B2B transactions, this could translate to higher processing fees, additional compliance requirements, or increased administrative burdens. These added costs could ultimately trickle down to businesses, further straining their ability to manage debt.

4. Legal and Regulatory Uncertainty

With at least 12 other states considering similar legislation and ongoing legal challenges against the IFPA, the regulatory landscape remains uncertain. For debt collection agencies operating across multiple states, navigating different interchange fee regulations could add complexity to compliance strategies. Businesses may need to adjust their credit and payment policies to mitigate risks associated with fluctuating transaction costs and regulatory requirements.

5. Potential for Legislative Repeal or Modification

A bill to repeal the IFPA has been introduced in the Illinois House, and industry groups are expected to continue pushing for broader relief in upcoming court hearings. If the law is repealed or modified, businesses and debt collectors must be prepared to adjust their strategies accordingly. Keeping up with legislative changes and legal rulings will be crucial for those operating in the B2B debt collection space.

Conclusion

The IFPA introduces significant changes to interchange fees and merchant reimbursements, with broad implications for B2B transactions and debt collection. Cash flow disruptions, payment processing complexities, and regulatory uncertainty could create new challenges for businesses and collection agencies. As legal battles continue and other states consider similar legislation, staying informed and adaptable will be essential for businesses navigating the evolving financial landscape.