Illinois merchants who hoped to stop paying credit-card interchange fees on the tax and tip portions of customer transactions will have to keep waiting, and the wait may now be permanent. The state’s Interchange Fee Prohibition Act, the first law of its kind in the United States, has been delayed twice by the General Assembly and then effectively killed by a federal banking regulator. The Office of the Comptroller of the Currency (OCC) issued an interim final action declaring that federal law preempts the Illinois statute for nationally chartered banks, and a federal judge has since blocked the measure from taking effect.
Two legislative delays opened the door for federal preemption
When Illinois first enacted the Interchange Fee Prohibition Act, codified as 815 ILCS 151, Section 150-10 set out a straightforward rule: card networks and issuing banks could not charge interchange fees on the tax or gratuity portion of a credit-card transaction when a merchant transmitted those amounts separately. The law was originally set to take effect on July 1, 2025. Before that date arrived, the General Assembly passed Public Act 104-0004, pushing the operative date back a full year to July 1, 2026.
That single delay proved to be only the beginning. Lawmakers then filed House Amendment 1 to SB3645, which proposed moving Article 150’s effective date again, this time to July 1, 2027. Each postponement reflected political uncertainty about whether the ban could survive legal challenges and whether Illinois payment processors could retool their systems in time. But the repeated delays had a second, less visible consequence: they gave federal regulators time to act before a single transaction was ever processed under the new rules.
The OCC seized that opening. In its News Release 2026-32, the agency announced two interim final actions clarifying that federal law preempts the Illinois statute as applied to OCC-regulated banks. The agency’s rationale centered on the argument that the state standard was “complex and unworkable” and would destabilize national payment systems. Because the law had never gone into effect, no merchant had tested it, no card network had built compliance infrastructure around it, and no court had evaluated whether it worked in practice. The delays, in short, created a regulatory vacuum that federal authority filled.
What the federal block means for Illinois retailers and consumers
A federal judge has now made the preemption effectively permanent, blocking the Interchange Fee Prohibition Act from being enforced against nationally chartered banks. That ruling does not merely delay the law further; it removes the legal mechanism through which Illinois planned to cut swipe fees on taxes and tips for the vast majority of card transactions routed through national bank networks.
For restaurant owners, retailers, and other merchants across Illinois, the practical effect is clear: interchange fees on the full transaction amount, including sales tax and gratuity, will continue to be assessed as they always have been. The promise of savings on card-processing costs-particularly significant in high-ticket or high-gratuity sectors such as fine dining, hospitality, and certain professional services-remains unrealized. Businesses that had hoped to use lower fees to offset thin margins or fund wage increases now face the same cost structure they have long navigated.
Consumers are unlikely to see immediate, line-item changes on their receipts, but the ruling still matters for them. Many small merchants price their goods and services with payment-processing costs in mind, and some add explicit surcharges or “non-cash adjustment” fees to credit-card purchases. Without relief on interchange charges tied to taxes and tips, merchants have less flexibility to roll back those add-ons or to avoid passing rising costs through to customers. Over time, the persistence of full-fee processing on every component of a transaction may subtly influence menu prices, service charges, or tipping norms.
The decision also underscores the limits of state-level experimentation in financial regulation when federal preemption is in play. Illinois attempted to carve out a narrow protection for merchants within its borders, but as long as most credit cards are issued by nationally chartered banks, federal law can override conflicting state rules. The OCC’s intervention signals that similar efforts in other states may face the same fate unless they are carefully tailored to avoid conflicts with national banking standards or are coordinated with federal agencies from the outset.
What options remain for lawmakers and businesses
Despite the setback, Illinois policymakers are not entirely without tools. The General Assembly could revisit the statute to explore alternatives that do not directly regulate national bank interchange practices-such as targeted tax credits, grant programs to offset processing costs for small businesses, or disclosure requirements that help merchants better understand and negotiate their fee structures. Any new approach would need to be crafted with close attention to federal banking law, a task that often begins with guidance from resources like the Legislative Reference Bureau, which supports bill drafters and committees.
Merchants, meanwhile, may focus on private-sector strategies. These include steering customers toward lower-cost payment methods, renegotiating processor contracts, or adopting point-of-sale systems that optimize routing over less expensive networks where possible. None of these steps replicates the across-the-board relief the Interchange Fee Prohibition Act promised on taxes and tips, but they represent the remaining levers businesses can pull while federal preemption keeps the Illinois law on the shelf.
For now, the combination of legislative delay, regulatory preemption, and judicial enforcement has left the Interchange Fee Prohibition Act largely symbolic. It stands as a case study in how timing and federal-state dynamics can determine whether a headline-grabbing reform ever reaches the checkout counter.
