Illinois’ first-in-the-nation Interchange Fee Prohibition Act has become more than a dispute over credit card “swipe fees.” It has since evolved into a test of state authority, federal banking preemption, payment-card infrastructure, and the practical limits of regulating national payment systems one state at a time.
The Illinois Interchange Fee Prohibition Act or IFPA, is scheduled to take effect on July 1, 2026. In general terms, the Act prohibits an interchange fee from being charged or received on the portion of a credit or debit card transaction attributable to taxes or gratuities. That means, for example, that if a customer pays a restaurant bill by card, the interchange fee could not be assessed on the sales tax or tip portion of the transaction.
That basic description has fueled a substantial public campaign over “swipe fees,” “credit card fees on taxes and tips,” and whether Illinois businesses should pay processing fees on money they do not keep. But the legal issue is more technical: whether Illinois can impose that rule on participants in a payment-card system that includes national banks, federal savings associations, card networks, acquiring banks, issuing banks, processors, merchants, and transactions that may not fit neatly inside state borders.
On April 24, 2026, the Office of the Comptroller of the Currency issued two coordinated interim final actions aimed directly at the Illinois law. First, the OCC issued an interim final rule amending 12 C.F.R. § 7.4002 to clarify that national banks may charge non-interest fees, including interchange fees, even when those fees are set by or in consultation with third parties. Second, the OCC issued an interim final order concluding that federal law preempts the IFPA as applied to national banks and federal savings associations. The interim final rule was published in the Federal Register on April 29, 2026, is effective June 30, 2026, and comments are due 30 days after publication.
The timing appears designed to address the July 1 effective date. The OCC’s rule becomes effective one day before the IFPA’s scheduled July 1, 2026 effective date. The Seventh Circuit appeal in Illinois Bankers Association v. Raoul is also moving quickly, with oral argument set for May 13, 2026.
What the IFPA Does
The IFPA targets interchange fees on the tax and gratuity portions of electronic payment transactions. The OCC’s own summary describes the Illinois statute as prohibiting card issuer banks, card networks, acquirer banks, and other participants from receiving or charging a merchant an interchange fee on the tax or gratuity amount of a payment-card transaction. The statute provides two apparent paths: an automatic process, if the merchant transmits the tax or gratuity amount as part of authorization or settlement, and a manual process, under which the merchant may later transmit documentation and receive a credit. The OCC notes that violations may carry a civil penalty of $1,000 per transaction.
The law is framed as a limitation on fees charged against taxes and tips. But compliance may require the payment system to identify, transmit, isolate, and reconcile tax and gratuity data in ways that current card infrastructure may not support. The OCC states that current payment-card infrastructure does not support the IFPA’s automatic process and cannot be updated by the July 1 effective date. It also describes the manual process as uncertain because acquirers may not be able to identify the issuer in a given transaction, there may be no direct communication mechanism between the banks, and receipts often show only the last four digits of a card number.
That does not mean the State’s policy objective is irrational. Merchants understandably object to paying processing fees on taxes they remit to the government and tips that belong to employees. The problem is that the legal fight is no longer only about that policy choice. It is about whether Illinois may impose that rule on federally chartered institutions and a payment network architecture that was not built to treat tax and tip amounts as separate fee categories at the point of authorization and settlement.
The February District Court Decision
The OCC’s action responds directly to Judge Virginia Kendall’s February 10, 2026 decision in Illinois Bankers Association v. Raoul. As I previously wrote to members of the Illinois State Bar Association State & Local Tax Section, the Northern District of Illinois largely upheld the IFPA’s core interchange fee prohibition, while granting relief as to the statute’s data usage limitation for certain federally regulated entities.
My earlier article on the district court decision correctly focused on the court’s central distinction: banks may benefit from interchange fees, but card networks such as Visa and Mastercard generally set the interchange rates. Judge Kendall treated that distinction as important to the National Bank Act preemption analysis. On the record before the court, she concluded that the IFPA did not significantly interfere with national bank powers merely because it affected a fee set by third-party card networks rather than by the banks themselves.
That is the precise point the OCC now contests.
The OCC’s interim final rule says the district court created ambiguity about the scope of 12 C.F.R. § 7.4002 by treating third-party fee-setting as outside the protection of the national bank fee regulation. The OCC states that national banks have broad authority to engage in activities that are part of, or incidental to, the business of banking, including issuing debit and credit cards and processing payments. It further states that national banks have authority to receive compensation for those services, including interchange fees.
The OCC’s position is that the federal banking power does not disappear because the bank participates in a network where the fee is set by Visa, Mastercard, or another third party. In the OCC’s view, national banks routinely use third parties to provide banking products and services, and payment cards are a central example.
What the OCC Rule Actually Changes
The interim final rule amends 12 C.F.R. § 7.4002 in several important ways.
First, it defines “charge” broadly. Under the revised regulation, to “charge” means to directly or indirectly assess, collect, impose, levy, receive, reserve, take, or otherwise obtain a fee, including through intermediaries, partners, payment networks, interchanges, or other third parties.
Second, it states expressly that a national bank may charge non-interest charges and fees, including deposit account service charges and interchange fees from credit and debit card operations.
Third, it clarifies that decisions about non-interest charges and fees, including their amounts, calculation method, business relationships, lines of business, and whether fees are set by or in consultation with third parties, are business decisions for each national bank, subject to sound banking judgment and safe and sound banking principles.
Those changes are narrow in form but significant in effect. They are designed to answer the district court’s reasoning directly. The district court concluded that the IFPA’s interchange fee provision did not prevent or significantly interfere with national bank powers because, on the record before the court, interchange rates were set by payment-card networks rather than by the national banks themselves. The OCC responds that federal law protects a national bank’s ability to obtain non-interest compensation through the payment-card system even where third parties participate in setting or calculating the fee.
In other words, the OCC is not merely saying “Illinois made a bad policy choice.” It is saying Illinois has regulated in a field where national banks have federally protected authority. The Illinois Restaurant Association and the National Restaurant Association, both of whom supported the law from the beginning, have criticized this new guidance.
The Interim Final Order Goes Further
The rule clarifies the scope of national bank powers. The separate OCC order applies that view to the Illinois statute.
The OCC’s interim final order concludes that federal law preempts the IFPA because the Illinois law purports to prohibit national banks and federal savings associations from charging or receiving interchange fees on tax and gratuity portions of payment-card transactions and restricts the use of payment-card transaction data. The order is also effective June 30, 2026.
The rule is a generally applicable amendment to the OCC’s regulation governing national bank non-interest charges and fees. The order is the OCC’s specific preemption determination as to the Illinois law.
For Illinois businesses, payment processors, banks, and trade associations, the practical result of these changes is added uncertainty. The OCC has taken a strong position that IFPA cannot be enforced against national banks and federal savings associations. But the State, merchant groups, or other interested parties may challenge the OCC’s action. Meanwhile, the Seventh Circuit appeal remains pending.
The Administrative Law Issue: Why an Interim Final Rule?
The OCC issued the rule without first going through the ordinary notice-and-comment process. It relied on the Administrative Procedure Act’s “good cause” exception, stating that advance notice and comment were impracticable because of the uncertainty created by the February 2026 district court decision and the approaching July 1 effective date.
That is likely to be one of the next litigation issues.
The OCC’s rationale is that national banks need certainty before July 1 because the IFPA may require customer communications, merchant communications, new technology, new software or hardware, transaction declines, or other operational changes. The OCC also warns that payment-card transactions may be declined in ways that are not limited to Illinois because determining whether a transaction is subject to the IFPA may itself be technically difficult.
But interim final rules are vulnerable when an agency uses them to make a legally significant change without pre-adoption comment. The OCC will argue that the rule is clarifying existing authority and was necessary to avoid imminent disruption. Opponents may argue that the OCC used an emergency procedural device to alter the legal landscape after the district court rejected the principal preemption theory advanced by the banking plaintiffs.
That procedural question may matter almost as much as the banking-law question. If a court views the OCC action as a valid clarification of longstanding national bank authority, the agency’s position is stronger. If a court views it as a rushed substantive rule adopted to change the litigation result before July 1, the challenge becomes more serious.
The Practical Issue for Illinois Merchants
For merchants, the key point is that the IFPA may still matter, but the compliance landscape is unstable.
Businesses should not assume that the statute is gone. The OCC order addresses national banks and federal savings associations. It does not necessarily resolve every application of the IFPA to every entity in the payment ecosystem. The February district court decision also included separate analysis of debit transactions, credit unions, federal savings associations, out-of-state banks, and data usage restrictions.
At the same time, businesses should not assume the July 1 compliance environment will proceed as originally expected. The OCC has now taken the position that national banks and federal savings associations are not subject to the IFPA. If that position holds, the State’s ability to enforce the Act against key participants in the payment-card system may be materially limited.
For restaurants, retailers, hotels, convenience stores, gas stations, and other businesses that process substantial card volume, the near-term question is not simply whether “swipe fees on taxes and tips” are lawful. The more immediate questions practical:
Will processors change settlement reporting before July 1?
Will acquirers ask merchants to transmit tax and gratuity data?
Will merchants be told to update point-of-sale systems?
Will card networks issue new guidance?
Will some transaction categories be declined or treated differently?
Will the Seventh Circuit act before the statute’s effective date?
Until those questions are answered, merchants should be cautious about making public-facing promises that card processing costs will change on July 1.
The Practical Issue for Banks and Payment Companies
For banks and payment companies, the OCC rule is helpful but not risk-free.
The OCC’s position gives national banks and federal savings associations a federal preemption argument that is far more direct than the argument available after the district court decision. The agency has now amended its own regulation to say that interchange fees are non-interest charges and fees, and that national banks may obtain those fees through third-party networks or similar arrangements.
That said, litigation risk remains. The rule and order may be challenged. The Seventh Circuit may address the district court decision before or after the OCC rule takes effect. And even if national banks are protected, the application of the IFPA to other entities may remain contested.
Payment participants should therefore treat the OCC action as a major development, not a final endpoint. Contract notices, processor communications, merchant guidance, card-network instructions, and compliance documentation should be written with that uncertainty in mind.
The Broader Federalism Issue
The deeper issue is whether states can regulate payment-card economics by isolating particular components of a transaction, such as taxes and tips, when the fee structure is embedded in a national or global payment system.
Illinois is the first state to enact this kind of law, but it is unlikely to be the last state to consider it. The advertising campaign around swipe fees reflects a politically powerful message: merchants should not pay card fees on taxes collected for the government or tips paid to workers. That message is simple, and it is likely to resonate with businesses and consumers.
The banking-law response is more technical: interchange fees compensate issuing banks for payment-card services, fraud risk, rewards programs, settlement, and network participation; those fees are part of the business of banking; and national banks may exercise those powers through third-party networks. That is a harder message to communicate, but it is the message now embedded in the OCC’s rulemaking.
This is why the case matters beyond Illinois. If the IFPA survives, other states may adopt similar statutes. If the OCC’s preemption position holds, state-level swipe-fee regulation will face a significant federal barrier whenever it reaches national banks or federal savings associations.
What Happens Next
Several dates matter.
The OCC’s interim final rule and interim final order were published in the Federal Register on April 29, 2026. The rule and order are effective June 30, 2026. Comments are due 30 days after publication, which places the comment deadline at May 29, 2026.
The IFPA is scheduled to take effect July 1, 2026.
The Seventh Circuit has set oral argument in Illinois Bankers Association v. Raoul for May 13, 2026.
That leaves a compressed window in which three things may happen at once: comments on the OCC action, appellate review of the district court decision, and operational planning for a state law that may or may not be enforceable against major payment-system participants by July 1.
Bottom Line
The OCC’s interim final rule and order materially change the posture of the Illinois Interchange Fee Prohibition Act.
After the February district court decision, Illinois appeared to have won the central preemption fight over the IFPA’s interchange fee prohibition, subject to appeal. The OCC has now intervened with a contrary federal regulatory position: national banks may charge and receive interchange fees as non-interest charges and fees, including where those fees are set by or in consultation with third-party card networks, and Illinois may not prohibit that activity as to national banks and federal savings associations.
For Illinois businesses, the law remains important, but its July 1 implementation is uncertain. For banks and payment companies, the OCC action creates a stronger preemption defense, but not complete insulation from litigation. For policymakers, the fight has become a larger question about whether swipe-fee regulation can be done state by state without colliding with federal banking law and the architecture of the payment-card system.
The practical advice is simple: do not treat July 1 as business-as-usual, but do not treat the IFPA as dead either. This is now a live, fast-moving dispute involving the State of Illinois, the OCC, the federal courts, national banks, card networks, and merchants. Businesses affected by card processing fees, tax-and-tip transactions, or payment-system compliance should monitor the Seventh Circuit appeal, the OCC comment process, and processor guidance before making operational or customer-facing changes.
Frequently Asked Questions About the Illinois Interchange Fee Prohibition Act
What is the Illinois Interchange Fee Prohibition Act?
The Illinois Interchange Fee Prohibition Act is a state law scheduled to take effect July 1, 2026. It generally prohibits interchange fees from being charged or received on the tax or gratuity portion of a credit or debit card transaction.
Did the OCC block the Illinois swipe fee law?
The OCC did not repeal the Illinois law. It issued an interim final order concluding that federal law preempts the IFPA as applied to national banks and federal savings associations. That position may materially limit enforcement against key payment-system participants, but it does not necessarily resolve every application of the Act and may itself be challenged.
When does the OCC interim final rule take effect?
The OCC interim final rule is effective June 30, 2026, one day before the IFPA’s scheduled July 1, 2026 effective date.
What did the OCC change in 12 C.F.R. § 7.4002?
The OCC amended 12 C.F.R. § 7.4002 to clarify that national banks may charge non-interest charges and fees, including interchange fees from credit and debit card operations. The rule also states that this authority applies even when those fees are set by, or in consultation with, third parties such as payment-card networks.
Is the Illinois Interchange Fee Prohibition Act still being appealed?
Yes. The appeal in Illinois Bankers Association v. Raoul is pending before the U.S. Court of Appeals for the Seventh Circuit, with oral argument set for May 13, 2026.
What should Illinois merchants do now?
Illinois merchants should monitor processor guidance, card-network instructions, the OCC comment process, and the Seventh Circuit appeal before making major operational changes or promising customers that card processing costs will change on July 1.
Will my restaurant’s credit card processing fees go down on July 1, 2026?
Not necessarily. The IFPA is scheduled to take effect on July 1, 2026, but the OCC has taken the position that the law is preempted as applied to national banks and federal savings associations. Because those institutions are major participants in the credit and debit card system, restaurants should not assume that processing fees will automatically decrease on July 1.
Does the Illinois swipe fee law apply to restaurant tips?
The IFPA targets interchange fees charged or received on the gratuity portion of an electronic payment transaction. In practical terms, the law is aimed at preventing card swipe fees from being calculated on tips. But the federal preemption dispute may limit how the law applies to national banks and federal savings associations, so restaurants should wait for processor guidance before expecting tip-related fee changes.
Does the Illinois swipe fee law apply to sales tax?
Yes. The IFPA is designed to prohibit interchange fees on the tax portion of a covered credit or debit card transaction. For restaurants and retailers, that means the law targets card fees on sales tax collected from customers and remitted to the State. The practical effect remains uncertain because of the OCC’s preemption order and the pending federal appeal.
Should my restaurant change its POS system before July 1?
Not unless your processor or POS provider gives a specific written requirement. The law contemplates separating tax and gratuity amounts from the rest of the transaction, but the OCC has questioned whether current payment-card infrastructure can support that process before July 1. Restaurants should ask their processor and POS vendor what, if anything, needs to change before spending money on system updates.
Will customers see lower menu prices because of the Illinois swipe fee law?
Not necessarily. Even if the law ultimately reduces some interchange fees, restaurants may not see immediate or uniform savings. Any savings would depend on how processors, card networks, issuing banks, acquiring banks, and courts respond. Restaurants should avoid promising customers that menu prices, service charges, or credit card surcharges will change on July 1.
Does the Illinois Interchange Fee Prohibition Act change how restaurants handle employee tips?
No. The IFPA concerns interchange fees on gratuities. It does not change wage law, tip ownership, tip pooling, payroll tax reporting, service-charge rules, or tip-credit compliance. Restaurants should not change employee tip practices solely because of this law without separate employment and tax review.