Illinois Interchange Fee Prohibition Act: Comptroller of the Currency Seeks to Override State Ban

On Friday, the Office of the Comptroller of the Currency asked a federal court to stop Illinois from enforcing its statute that bars interchange charges on state and local taxes and gratuities, asserting that federal law displaces the state’s fee ban.

The Interchange Fee Prohibition Act is a new Illinois credit card law focused on limiting interchange fees on the portion of a card transaction attributable to state or local taxes and customer gratuities. An interchange fee is a per-transaction fee tied to card acceptance that is paid to the cardholder’s issuing bank, typically via the card network and the payment system’s settlement process.

The law’s purpose is to reduce card-acceptance costs on amounts that merchants characterize as pass-through payments rather than revenue. Key provisions generally bar charging or collecting interchange on the tax and gratuity portion of a covered transaction and hinge the limitation on those amounts being separately identifiable in transaction information.

For merchants, the act could lower effective card costs on transactions with higher tax or tipping components, but it can also create compliance considerations, including configuring point-of-sale systems to itemize taxes and gratuities, ensuring processors transmit that information correctly, and retaining supporting records if a charge is questioned.

The agency noted it issued an interim final order last month to supersede the Illinois measure, and said its updated final rule will take effect on June 30, one day before the state law is slated to become operative.

In an amicus brief, the agency argued the order will independently override the Illinois statute and urged the judge to avoid issuing a ruling that could become irrelevant within weeks.

Lawsuit and Appeals: Where the Act Stands

Four industry groups filed suit against the state in August 2024, two months after Gov. Pritzker signed the statute.

On May 8, the Seventh Circuit Court of Appeals vacated an earlier decision by United States District Judge Virginia Kendall that had backed the law’s core provision, sending the dispute back to her courtroom for further review in light of the comptroller’s office move to override the state law. As of that ruling, the appeals court did not finally uphold or permanently block the interchange restriction, and the merits remain pending on remand.

Illinois pioneered this type of restriction, spurring similar bills elsewhere as lawmakers targeted card transaction costs.

Supporters of the measure included:

• Restaurant organizations.
• Retail organizations.

They argued it would curb what their members pay when customers use a payment card.

In a recent filing, Illinois Attorney General Kwame Raoul contended the comptroller’s office action is procedurally defective because it failed to meet Administrative Procedure Act rulemaking requirements.

The attorney general’s office also argued that, even if the comptroller’s rule were valid, national banks lack authority under the National Bank Act to collect interchange fees that are not set through competitive processes.

Plaintiffs representing banks and credit unions urged Judge Kendall to block the statute, citing several legal points:

• Federal preemption argument.
• The comptroller’s rule affirms national banks’ authority.
• Default interchange rates set by card networks.

Back in February, Judge Kendall denied the plaintiffs’ request for an injunction but invalidated a portion of the statute that restricted the use of transaction data by banks, networks, and other financial institutions.

National Credit Union Administration Mirrors Comptroller’s Office on Fee Ban

Separately last week, the National Credit Union Administration, which oversees federal credit unions, appeared to align with the comptroller’s office approach to overriding the state restriction.

The administration submitted an interim final rule on overriding federal credit union “non-interest charges and fees” to the Office of Management and Budget for review, following a process similar to the comptroller’s office. A May 18 filing did not include draft text.

A spokesperson for the agency declined to comment.

Scott Talbott of the Electronic Transactions Association said the administration’s step would leave only Illinois-chartered banks subject to the statute, while national banks and federal credit unions could rely on federal law.

Procedural Clash and Market Impact

The comptroller’s office also maintained that Illinois cannot challenge the agency’s rulemaking within the Chicago litigation and must bring a separate case. The attorney general’s office countered that position, citing Supreme Court precedent from 1982.

Plaintiffs asserted the comptroller’s office accelerated its effort to override the state law in response to Judge Kendall’s earlier ruling.

The comptroller’s office had good cause to act immediately, the plaintiffs said, because banks and payment networks needed prompt regulatory clarity to set interchange terms and update operating rules.

They warned that, if the state statute takes effect, some merchants could stop accepting cards and some banks might reconsider operating in Illinois, affecting payment acceptance and processing arrangements.

With the effective date approaching and the case still in flux, operational teams are being asked to prepare for more than one settlement and reporting path at the same time.

Counsel for the attorney general argued the comptroller’s office case leans on an invalid interim rule and otherwise reiterates the plaintiffs’ litigation arguments.

Ahead of enforcement, two credit union trade groups saturated Illinois media with ads to highlight potential consumer harm, according to a May 18 statement from America’s Credit Unions.

At a fintech conference hosted by Semafor and the Financial Technology Association, Comptroller of the Currency Jonathan Gould declined to comment on the Illinois law.

During the same event, Gould urged banks and other financial institutions to reinforce the political consensus that has long supported federal override of state limits in the courts.

He added that the agency cannot track every state’s legislative activity and relies on supervised institutions and the banking bar to alert the agency to developments.