Whenever someone uses a credit card to pay a bill, the credit card company charges a fee (typically bewteen 2% and 3% of the transaction cost) to process the payment. A controversial bill to change that in a single narrow instance has sparked a heated, ongoing debate between supporters and detractors.
House Bill 315 would prohibit credit card companies from charging processing fees on tips. It has been released from committee and is on the House Ready List, awaiting consideration of the chamber.
The Delaware Restaurant Association supports the passage of this bill. From the perspective of restaurant owners, they are currently paying processing fees on tips, which is money they do not receive as revenue. That is a high cost in an industry with extremely thin profit margins that has never fully recovered from the pandemic and continues to struggle.
“Every single day, restaurant owners are forced to watch thousands of dollars disappear in unnecessary fees on tips,” stated a recent post from the Delaware Restaurant Association. “This isn’t just a small inconvenience—it’s money that should be supporting hardworking staff and the businesses that employ them.”
Under Delaware law, restaurants cannot deduct transaction fees from their workers’ tips.
The banking and credit card industries oppose the measure. Assuming a typical restaurant patron pays his bill with a credit card and adds a 20% tip, credit card companies would lose roughly one-sixth of their revenue on such transactions if the bill were signed into law.
The Electronic Payments Coalition (EPC), a trade group representing the institutions and networks that form the backbone of the nation’s electronic payments system, has launched a public lobbying campaign to pressure lawmakers to withdraw their support. At the moment, the measure is unusually popular, with broad bipartisan backing. Thirty-eight of the legislature’s 62 members are sponsoring or co-sponsoring the bill.
The coalition says enacting the law would require systemic changes to credit transaction networks and warned that credit card companies may bar the use of their cards to pay tips. One social media ad posted by the group said that if the proposal becomes law, “credit & debit cards may not work for tips—risking the incomes of tipped workers.”
While similar proposals have reportedly been made in more than two dozen states, only one, Illinois, has enacted it.
Even there, the matter remains unsettled. The Illinois Bankers Association et al. is challenging the constitutionality of the law in an appeal before the U.S. Court of Appeals for the Seventh Circuit.
