Why It Matters
Illinois’ attempt to strip interchange fees from the tax and tip portions of card transactions has hit a wall on two fronts simultaneously — a permanent federal court injunction and a third legislative delay. The developments leave the law’s future deeply uncertain and signal how aggressively federal banking regulators will defend their authority over state-level fee restrictions.
What Happened
U.S. District Judge Virginia Kendall issued a permanent injunction on Monday prohibiting enforcement of the Illinois Interchange Fee Prohibition Act against national banks, federal savings associations, out-of-state banks, and payment networks. State-chartered institutions and credit unions are not covered by the order and remain subject to the statute.
The ruling is a sharp pivot from Kendall’s own earlier decision. Back in February, she had allowed the law to move forward. What changed was action taken by the Office of the Comptroller of the Currency in April, when the agency rewrote its fee regulations to spell out explicitly that national banks may charge fees set by third parties — directly colliding with what Illinois law prohibits.
Kendall concluded the regulatory revision eliminated any ambiguity about federal preemption, writing that “it is obvious from the face of the new rule that the modified language tees up an express conflict with the IFPA.” The 7th Circuit Court of Appeals, which had been weighing a related legal challenge, returned the case to Kendall’s court before she issued Monday’s injunction.
At the same time, the General Assembly voted to push the law’s effective date back another full year to July 1, 2027, pending the governor’s signature. Lawmakers had already delayed the original July 1, 2025 launch once, to July 1, 2026, before approving this second extension.
Background
The Illinois Retail Merchants Association lobbied for the measure roughly two years ago, seeking to spare merchants from paying interchange fees — the per-transaction charges that banks and card networks collect — on the tax and tip portions of a sale. Those fees generally run between one and two percent of the transaction total.
Banks and the retail industry have both pegged the annual revenue impact of the law somewhere between $120 million and $200 million. In a separate but related 2024 fiscal agreement, lawmakers raised $101 million by placing a $1,000 monthly ceiling on a “retailer’s exemption” tax break tied to the overall swipe fee debate.
The OCC framed its April rule change as a clarification rather than a departure, stating that while existing regulations already permitted national banks to impose third-party-set fees, the agency was revising the rule “to make that explicit.” That language gave Kendall the basis she needed to grant the permanent injunction.
By the Numbers
1–2% — Interchange fee rate typically assessed on card purchases
$120M–$200M — Estimated annual revenue at stake under the Illinois law, as calculated by banks and retailers
$101M — Additional revenue Illinois lawmakers agreed to collect in 2024 by capping the retailer’s exemption
$1,000/month — The cap placed on the retailer’s exemption as part of that 2024 deal
3 effective dates — The law has now been assigned or delayed to July 2025, July 2026, and July 2027
Zoom Out
The Illinois case has emerged as a test of how far states can go in regulating fees that national banks charge or collect. The OCC’s willingness to revise its own rules specifically to preempt the Illinois statute reflects a broader federal posture of limiting state intervention in national bank operations — a dynamic other states watching interchange fee legislation will need to account for. Several states have explored similar restrictions on card transaction costs, and Monday’s injunction makes clear that federal preemption poses a substantial obstacle to that approach.
What’s Next
Gov. JB Pritzker must decide whether to sign the delay legislation moving the effective date to July 1, 2027. Even if he does, the permanent injunction means the law cannot be enforced against major banks and payment networks regardless of what date is written into the statute. Legal appeals remain possible, and the 7th Circuit’s eventual handling of any challenge could determine whether a narrower version of the law survives federal scrutiny. Illinois merchants and lawmakers who championed the original measure face a reassessment of their strategy given the changed regulatory and judicial landscape.