Why Should Delaware Care?
With credit cards now the dominant form of payment in the U.S., the fees that banks and payment networks charge for their usage is coming under greater scrutiny. A new debate on applying those fees on gratuities pits banks against their small business customers.
One of the most-heated battles at the statehouse this year has been waged by some of the nation’s largest banks and credit card networks against a bill that seeks to ban the application of service fees on tips.
It was a proposal that garnered little fanfare in the run up to the 2026 General Assembly, but a recent federal court win in Illinois on a similar measure convinced advocates to push forward in potentially making Delaware only the second state to enact such a law.
House Bill 315, sponsored by Rep. Kim Williams (D-Stanton), would prohibit the charging of those payment fees, known as “interchange fees” that range from 1% to more than 3% of a transaction total, on gratuities. Violations would result in a penalty of $1,000 per transaction and the refunding of wrongful fees.
In an unusual show of bipartisanship, more than half of the entire General Assembly has already co-signed on the bill, including all four Democratic and Republican leaders. That has clearly rattled the banking and credit industry that is a staple of Delaware’s economy.
In response, the powerful Electronic Payments Coalition – which represents banking giants, payment networks, credit unions and community banks – has spent more than six figures on a lobbying, advertising and marketing blitz to try to head off the issue before it could make it to Gov. Matt Meyer’s desk.
It already cleared its first hurdle in being released by the House Economic Development, Banking, Insurance and Commerce Committee last month, but it is still awaiting a vote on the House floor.
Should HB 315 be signed into law, the industry would almost assuredly sue to prevent it from being enforced, as it did in Illinois.
What’s a ‘swipe fee’?
In today’s increasingly cashless society, a constant hum of electronic transactions ping from merchants’ cash registers to processing software to payment networks to banks and back.
The four major payment networks – Visa, Mastercard, Discover and American Express – take a cut of every transaction, which is borne by the merchant, in order to process the payment. Depending on the credit card and purchase, those fees range from 1% to upward of 4%.
A card-issuing bank, such as Capital One or JPMorganChase, ultimately receives those funds to cover the cost of reward programs, fraud losses and risky lending, while the networks keep pennies on the dollar for facilitating the transaction. With several trillion credit card charges a year though, that has amounted to billions in revenue for the networks.
Meanwhile, in a climate of rising costs and increasing reliance on credit cards for everyday purchases, many small business owners are frustrated with paying that fee.
And they are especially frustrated that the fees are applied to the entirety of a bill, including tips, essentially cutting into their profits.
For example, a diner leaving a $20 tip on top of a $100 dinner bill and paying with credit card would result in a restaurant paying the bank $2.40 to process the bill. A server will receive that $20 from the bill, but the restaurant owner is paying the additional 40 cents to cover it in the transaction.
In 2024, Illinois became the first state in the nation to pass a swipe fee ban on taxes and tips. It promptly faced a legal challenge from the American Bankers Association, but in February a federal judge allowed the law to go into effect on July 1.
The bankers have appealed the case to the Seventh Circuit Court of Appeals, but in the meantime they have not reportedly moved to implement the technological improvements needed to make the law possible. The case is likely to end up before the U.S. Supreme Court.
For now, two dozen other states are acting on Illinois’ lead to consider similar legislation, including Pennsylvania, Colorado and Oklahoma, among others.
Proponents argue for ‘fairness’
Backing the introduction of the bill was the Delaware Restaurant Association, whose more than 2,000 members and their 50,000 employees bear the largest brunt of fees on tips.
Each year, Delaware restaurants pay banks and payment networks roughly $6 million combined in fees on tips, according to estimates compiled by National Restaurant Association economists. By prohibiting those fees, the average full-service restaurant in Delaware would save roughly $6,700 per year.
Many restaurateurs report the credit card fees are their third or fourth largest expenses on their balance sheets – larger than even health insurance in some cases, said Carrie Leishman, the president of the DRA.
Katie Kutler, owner of kaffé KARMA in Greenville, told the House committee that 92% of her $1.5 million in sales last year were by credit card, which resulted in more than $14,000 in fees to the industry. Patrons also left more than $135,000 in tips for her employees, which were likewise charged into those interchange fees, costing her small business thousands of dollars.
“Refusing credit cards is not an option, it’s how our guests pay,” she said.
Craig Wensell, owner of Wilmington Brew Works, likewise said that the fees on tips to his bartenders amounted to about $10,000 at his two locations last year.
“This is $10,000 penalty on money that we never kept. These are funds that we do not benefit from. … Having to absorb these ever increasing processing tolls directly diminishes our ability to pay our staff and manage our bottom line,” he said.
Joining the restaurant industry in supporting the bill is the Delaware Hotel & Lodging Association and the Delaware Brewers Guild, but so far the proponents of the measure have largely stuck to managing relationships within Legislative Hall.
Leishman, of the DRA, said the bill essentially forces legislators into a David versus Goliath fight of “Main Street versus Wall Street.”
“A tip is not a transaction. It’s a thank you, and no part of that tip should go to a bank,” she said.
Opponents spend big
Over the past month, virtually all Delawareans have seen some version of an anti-HB 315 ad, which have depicted waitresses, baristas and Uber drivers with ominous messaging asking to help “save tipped workers.”
According to a Spotlight Delaware analysis of Facebook data, the Electronic Payments Coalition has spent upward of $100,000 on ads on the platform since early March. It has also spent an undetermined amount to launch a website, run video ads on streaming services in the state and hire a popular Delaware social media influencer to film an anti-HB 315 ad for The Points Guy social media channel.
In Dover, the coalition and many of its members have hired some of the state’s top lobbying firms to work on the bill, according to the state database. It has also placed op-ed columns in The News Journal and the Philadelphia Inquirer to warn of the bill’s impact.
Nick Simpson, a spokesperson for the EPC, told Spotlight Delaware that the coalition would continue the messaging as long as HB 315 remained under consideration this year. He argued that the bill’s proponents were over-simplifying the fix, which would require a wholesale change to how transactions are currently processed.
“This is not like your iPhone needs an update. The current system doesn’t transmit data the way that the Delaware bill would have it transmitted. It would require reworking, reconfiguring and rebuilding the system,” he said.
The decades-old payment networks have only ever asked for the total to be transmitted to issuing banks, and haven’t itemized them to allow for applying the fee to only part of a bill, he explained.
Should the payment networks simply refuse to process tips on credit cards due to the potential penalties of the Delaware bill, the EPC estimated that tipped workers could see a 10% reduction in overall pay because patrons typically carry less cash these days, Simpson said. Businesses could also bear higher operating costs in dealing with more cash, such as security, depositing and accounting for it. In some situations, they may also be forced to directly compensate their staff if their tips don’t exceed roughly $12.50 an hour, which bridges the gap between Delaware base tipped wage and its $15 minimum wage.
Some of the EPC’s messaging has also claimed that credit card reward programs could be threatened by HB 315, and Simpson said that’s because of the revenue decline that banks would see. When deciding where to invest their resources, banks have to prioritize fraud protection and technical maintenance before they can consider rewards to customers, he said.
Dan McCarthy, the president and CEO of Del-One Federal Credit Union, the largest credit union in Delaware, also told the House committee that interchange fees were an important part of protecting against fraud. His organization has seen $2.4 million in fraudulent charges in the last two years, for which they have fully reimbursed customers.
In many cases, the credit union is able to charge those losses back to a merchant, but not in every case, McCarthy said. Sometimes, they just have to take the loss.
“If this bill becomes law, credit unions would have to increase other sources of income, such as raising interest rates, or reducing expenses. That could mean limiting access to credit cards to the riskiest members, and that could negatively impact our financial inclusion efforts,” he said.
