Interchange Fee Prohibition Act: Illinois Delay and Federal Preemption Clash

Illinois has pushed back enforcement of its ban on charging interchange fees to tax and gratuity line items until 2027, and that restriction is the core provision of the Illinois Interchange Fee Prohibition Act. Interchange fees are the charges merchants pay when customers use credit or debit cards; those fees are generally received by the card-issuing banks, with card networks playing a central role in setting and administering the fee schedules through the payment system. Supporters describe the measure as a new Illinois credit card law aimed at preventing merchants from paying swipe-related charges on amounts they collect and pass through—such as sales tax and tips—rather than keep as revenue, while federal regulators pursue preemption and court battles continue.

Briefing: Interchange Fees, State Delay, and Advocacy Responses

• State lawmakers voted to postpone until 2027 the prohibition on applying interchange fees to the tax and tip portions of bills. This marks a second consecutive one-year extension for a statute entangled in litigation. The votes took place Sunday and early Monday as the legislative session concluded, and the measure now awaits Gov. Pritzker’s signature.
• In separate action tied to an Office of the Comptroller of the Currency rulemaking intended to preempt the Illinois statute, a dozen consumer organizations filed comments Friday condemning the proposal. They argued the agency is pivoting to protect bank and network earnings, asserting that fee coordination would be sanctioned when routed through third parties, with competition concerns sidelined.
• The Merchant Payments Coalition urged the Office of the Comptroller of the Currency to withdraw its interim rule and order. The group said the move runs counter to President Trump’s call to end the “swipe fee rip-off” by preserving a framework where card networks influence the fees banks levy on merchants.

Insight: Timeline, Federal Moves, and Court Fights

The Interchange Fee Prohibition Act, enacted in 2024, was slated to begin on July 1, 2025, before legislators first delayed it amid court challenges. A second 12‑month deferral arrives as the Office of the Comptroller of the Currency and the National Credit Union Administration seek federal preemption of the Illinois law, with opponents arguing federal banking law overrides a state-by-state restriction on how interchange is assessed and collected.

The Office of the Comptroller of the Currency’s proposed change seeks to clarify that national banks may assess and collect interchange charges on payment card activity—even when those amounts are set by, or developed with, third parties such as card networks. That reading would apply to credit and debit card transactions under federal law.

Preemption disputes here hinge on whether a state’s carveout effectively rewrites core bank powers in card transactions or merely regulates how local commerce is priced and itemized.

In a March 30 filing on the Office of the Comptroller of the Currency docket, the American Bankers Association warned the Illinois measure could splinter the payment system, undermine operational resilience, and affect consumers and businesses well beyond the state’s borders. In practice, opponents say compliance would require payment processors, acquirers, and issuers to reliably identify and transmit tax and gratuity amounts as separate data elements, apply different fee logic to different portions of the same sale, and reconcile that split through authorization, clearing, settlement, refunds, and chargebacks—creating mismatches across systems that were not built to treat state-defined line items differently.

Illinois was the first state to adopt this type of curb on card‑swipe costs, spurring similar proposals elsewhere as lawmakers look to rein in fees tied to a card transaction. Restaurant and retail associations have backed the Illinois law as members aim to cut the charges incurred when customers pay by card by excluding sales tax and tips from the interchange-fee base, but merchants and their providers may need operational updates—such as point-of-sale and gateway changes to separately capture tax and gratuity, receipt and reporting adjustments, and coordination with processors on how those fields are passed and validated.

The American Bankers Association estimates the law touches roughly 1.3 million in‑state merchants, plus thousands more e‑commerce retailers serving Illinois buyers. Industry opponents also argue that if one state’s approach takes hold, it could pressure networks and banks to implement multiple state-specific routing and data-handling paths, increasing complexity for merchants and processors nationwide and potentially influencing the shape of future state proposals and any broader federal policy response.

Four trade groups sued the state in August 2024, two months after Pritzker signed the statute.

The case in United States District Court in Chicago centers on how the Office of the Comptroller of the Currency’s preemption stance may affect the law, with challengers contending the state restriction conflicts with federal authority over national banks and would impose unworkable operational requirements across the card ecosystem.

The plaintiff organizations said Monday that the extra year will avert looming payment disruption for Illinois businesses and consumers while their challenge proceeds. They said they remain confident and intend to secure permanent relief from what they view as a misguided policy. Merchants, meanwhile, can use the added time to inventory how their point-of-sale systems and e‑commerce checkouts capture tax and gratuity, confirm with their acquirers and processors whether those amounts can be carried through in transaction data fields, review refund and chargeback workflows for split amounts, and monitor the ongoing federal rulemaking and litigation for implementation details.

Scott Talbott of the Electronic Transactions Association said Monday the second extension gives the district court time to revisit its ruling in light of the Office of the Comptroller of the Currency’s determination that the law is preempted by federal law.

The consumer signatories included:

• National Association of Consumer Advocates
• National Community Reinvestment Coalition
• Americans for Financial Reform Education
• Other consumer organizations (total: 12)