On June 30, 2026, the Office of the Comptroller of the Currency published two interim final actions that allow nationally chartered banks to keep charging merchants credit card processing fees on tips and sales tax, overriding an Illinois law designed to eliminate exactly those charges. The state’s ban was set to take effect the very next day, July 1. The OCC did not leave that timing to chance.
The result is a direct collision between a state legislature that spent years trying to give merchants relief and a federal regulator that moved at the last possible moment to preserve the status quo for the banks it oversees. For restaurant owners, retailers, and other card-accepting businesses in Illinois, the practical question is immediate: will anything actually change on their processing statements after July 1?
What the OCC did and how preemption works
The agency’s News Release NR OCC 2026-32 contains two distinct legal instruments. The first is an interim final rule reaffirming the fee-charging powers that national banks hold under federal law. The second is a preemption order that names the Illinois Interchange Fee Prohibition Act (IFPA) specifically and declares that OCC-regulated banks are not bound by it.
Preemption, in plain terms, means federal law overrides state law when the two conflict. The OCC’s position is that Congress already granted national banks broad authority to set and collect fees, and that Illinois cannot restrict that authority through state legislation. It is the same legal doctrine that has surfaced in fights over state interest-rate caps and lending rules for decades.
Because the OCC issued these as interim final actions rather than proposed rules, they took effect immediately. Interim final rules typically include a public comment period after publication, but the restrictions apply from day one. Whether the OCC will modify the rule based on comments it receives remains to be seen.
What interchange fees are and why tips and taxes matter
Interchange fees are the charges merchants pay every time a customer swipes, taps, or inserts a credit or debit card. For credit cards, these fees are set by the card networks (Visa, Mastercard, American Express) and typically range from roughly 1.5% to 3.5% of the transaction total, depending on the card type, merchant category, and network. Debit card interchange is generally lower, partly because of caps imposed by the Federal Reserve under the Durbin Amendment. The Federal Reserve publishes average debit interchange data, though comparable public reporting for credit card interchange is limited.
The critical detail for this fight: those percentage-based fees are calculated on the entire amount charged to the card, including the sales tax collected on behalf of the state and any tip added by the customer. A server’s $20 gratuity and the $8 in sales tax on a dinner check never become merchant revenue, but the merchant still pays a processing fee on both. For a high-volume restaurant running thousands of card transactions a month, those fractions compound into real money.
What Illinois tried to do about it
The IFPA’s Article 150 was designed to address that gap. It would have barred card issuers and processors from collecting interchange on the tax and gratuity portions of transactions in Illinois. Lawmakers originally set the provision to take effect on July 1, 2025, but the General Assembly passed Public Act 104-0004, pushing the start date back a full year to July 1, 2026.
The argument behind the law was straightforward: if a portion of a card transaction is not merchant revenue, the merchant should not owe a percentage-based fee on it. Illinois was among the first states to pass a law directly targeting interchange on tips and taxes, which made it a closely watched test case for merchant groups and banking lobbyists nationwide. The one-year delay itself reflected intense industry pressure; the additional time was meant to allow processors and banks to adjust their systems, but it also gave opponents a longer runway to seek a federal override.
Why the one-day gap matters
By publishing its preemption order on June 30, the OCC ensured that nationally chartered banks had federal cover before the Illinois ban could take legal effect. The practical result: any merchant whose card transactions are processed through an OCC-regulated institution will likely see no change on their statements after July 1. JPMorgan Chase, Bank of America, Citibank, and other large national banks fall under OCC jurisdiction. Interchange fees on tips and taxes will continue to appear on those transactions as before.
The Illinois law remains on the books. Article 150 still represents the legislature’s intent. But the OCC’s actions carve out a large share of the market before the state’s restrictions can take hold. National banks and federal savings associations handle a significant portion of card volume in any state, though the OCC’s release does not disclose exactly how much of Illinois’ transaction flow runs through federally chartered institutions.
A split system for Illinois merchants
This is where the situation gets genuinely complicated for businesses on the ground. The OCC regulates nationally chartered banks and federal savings associations, but it has no direct authority over state-chartered banks, credit unions, or the card networks themselves. Those entities could still be subject to the IFPA after July 1, depending on how Illinois regulators and courts interpret the law.
That creates the possibility of a split regime. A restaurant using a payment processor that routes some transactions through a national bank and others through a state-chartered institution could see interchange fees disappear on one batch and persist on another, even within the same business day. The same tip left by two different customers could generate different fee outcomes depending on which bank issued the card and how the transaction was routed behind the scenes.
As of late June 2026, no guidance from Visa, Mastercard, or major payment processors has been published explaining how they plan to handle overlapping federal and state rules. For servers and other tipped workers, the downstream effects are uncertain: whether any merchant savings from reduced fees on some transactions would flow back to employees through higher base pay or preserved tip pools is entirely up to individual employers.
What neither side has addressed publicly
Several critical gaps remain in the public record. The OCC did not publish an economic analysis alongside its interim final actions, so there is no official federal estimate of how much fee revenue the preemption protects for national banks or how much it costs Illinois merchants. The agency’s release also does not explain why it chose to act on June 30 rather than weeks or months earlier, a question that matters because the one-day margin looks less like regulatory deliberation and more like strategic timing.
On the state side, no public statement from Governor JB Pritzker or from the IFPA’s legislative sponsors has appeared addressing the federal preemption. Whether Illinois will challenge the OCC’s authority in court, pursue a legislative workaround, or accept the federal override is an open question. The Illinois Attorney General’s office has not indicated whether it views the preemption as legally sound or plans to contest it. A court challenge could test whether the OCC exceeded its statutory authority, potentially under the Administrative Procedure Act, but no such filing has been announced.
Independent cost estimates are also absent. Claims about how much money Illinois merchants lose to interchange on tips and taxes, or how much consumers might save if those fees were eliminated, are not supported by primary data in any currently available public document. Figures circulated by banking trade groups or merchant associations should be treated as advocacy estimates until backed by transparent methodology.
What this signals for other states considering interchange reform
Illinois is not the only state where merchants and lawmakers have pushed back against interchange costs. At the federal level, the Credit Card Competition Act, reintroduced multiple times by Senators Dick Durbin and Roger Marshall, has sought to increase routing competition for credit card transactions and potentially lower interchange costs for merchants nationwide. That bill has not passed, but it reflects the same frustration that drove the IFPA: merchants and their congressional allies believe interchange fees are too high and too opaque.
The OCC’s preemption of the Illinois law sends a clear signal to other state legislatures considering similar bills. If a federal regulator can override a state interchange ban the day before it takes effect, the path for state-level reform narrows considerably. Future efforts may need to focus on entities outside OCC jurisdiction, push for federal legislation that applies uniformly, or structure state laws in ways that avoid triggering preemption.
For now, the confirmed facts are narrow but significant. Illinois enacted a delayed ban on interchange fees tied to tips and taxes. The OCC blocked that ban for nationally chartered banks one day before it was scheduled to start. The state law still applies to institutions outside the OCC’s reach, but how much of the market that covers is unknown. Whether Illinois fights back, whether other states press forward, and whether merchants see any real relief all depend on official actions that, as of late June 2026, have not yet materialized.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
