A restaurant owner running a busy dinner service in Chicago collects, say, $100 on a credit card. Roughly $8 of that is sales tax headed to the state. Another $18 is a tip headed to the server. The merchant never keeps either dollar, yet the card-processing fee, typically around 2% to 3%, is calculated on the full $100. On that single check, the owner pays somewhere between 50 and 78 cents in interchange on money that was never revenue. Multiply that across thousands of transactions a month, and the cost adds up fast.
Illinois passed a law to stop that. The Office of the Comptroller of the Currency just made sure it will never take effect against the banks that dominate card issuing.
In May 2026, the OCC published an interim final rule and a separate interim final order that together block Illinois’ Interchange Fee Prohibition Act from applying to national banks and federal savings associations. The federal rule takes effect June 30, 2026, exactly one day before the state law was scheduled to kick in. The timing was deliberate. And the implications reach well beyond Illinois: any state legislature that tries to cap or carve out interchange fees on its own now faces the same federal wall.
What the OCC Actually Did
The OCC took two coordinated steps. The first is an interim final rule clarifying the fee-setting authority national banks already hold under federal law. The second is an interim final order declaring preemption of the Illinois IFPA for every institution the OCC supervises.
Both actions rest on 12 U.S.C. Section 25b, a provision added by the Dodd-Frank Act in 2010 that sets the legal bar for when federal banking law overrides a state statute. The OCC’s argument is direct: Illinois is trying to interfere with a federally authorized power to charge and collect interchange fees, and federal law wins that conflict.
By making the rule effective on June 30, the agency ensured that national banks and federal thrifts will never experience even a single day under the Illinois restriction. They can keep imposing interchange fees on the full transaction amount, including tax and tip, as long as they follow existing federal consumer-protection and pricing standards.
What Illinois Tried to Do
The Illinois Interchange Fee Prohibition Act, codified at 815 ILCS 151/150-1 et seq., targets a specific slice of every card transaction. When a merchant transmits tax and gratuity data during authorization or settlement, the law prohibits issuers and acquirers from charging interchange on those amounts. The reasoning is simple: sales tax gets remitted to the state, tips go to workers, and neither dollar belongs to the merchant, yet the merchant pays a percentage-based fee on both.
The statute laid out multiple compliance paths, including a 180-day documentation process for identifying non-revenue portions of transactions and a 30-day credit mechanism to refund fees assessed on those amounts. Its effective date for the relevant article is July 1, 2026, according to the Illinois General Assembly’s published text of Public Act 104-0004.
Sen. Dick Durbin, the Illinois Democrat who authored the federal Durbin Amendment governing debit interchange, had publicly applauded the legislature for passing the IFPA, framing it as a way to “protect consumers and small businesses” from fees on money that never belongs to the merchant. That political endorsement now collides head-on with the OCC’s determination that the same law conflicts with federally authorized bank powers.
Why the Preemption Standard Matters
Federal preemption of state banking laws is not new, but the OCC’s move here is unusually aggressive in how narrowly it targets a single state statute. Under 12 U.S.C. Section 25b, a state consumer-financial law is preempted only if it “prevents or significantly interferes with” a national bank’s exercise of its powers. The OCC is asserting that telling a bank it cannot collect interchange on certain line items of a transaction clears that bar.
One distinction that often gets lost in the debate: the Durbin Amendment and its implementing regulation, Regulation II (12 C.F.R. Part 235), apply only to debit card interchange for issuers with more than $10 billion in assets. Credit card interchange, which accounts for the larger share of swipe-fee revenue at restaurants and retail stores, is not capped by any federal statute. The Illinois IFPA applied to both debit and credit transactions, meaning it attempted to regulate territory that Congress has so far left to the card networks and their member banks. That overreach likely made the OCC’s preemption argument easier to sustain.
The Dollars No One Has Quantified
As of late May 2026, no public data from the OCC or the Federal Reserve quantifies how much interchange revenue national banks currently collect on the tax and gratuity portions of Illinois transactions. Without that number, the financial stakes for banks and the potential savings for merchants remain a matter of rough estimation rather than hard accounting.
Consider a back-of-the-envelope calculation. The National Restaurant Association reported that Illinois restaurants generated more than $33 billion in sales in recent years. If average credit card interchange runs around 2.2% and roughly a quarter of a typical restaurant check consists of tax and tip, the interchange collected on those non-revenue dollars across the state could run into the hundreds of millions annually. That figure is illustrative, not precise, but it suggests the stakes are large enough to explain why both sides fought this hard.
Neither the Illinois Retail Merchants Association nor any major issuer has released compliance cost estimates tied to the IFPA or to the OCC’s preemption order.
Legal Durability Is an Open Question
The OCC used an interim final rule rather than a standard notice-and-comment rulemaking, meaning the rule is already in force while public comments are still being collected. That procedural shortcut could become a target. Legal challenges from the state of Illinois, merchant trade groups, or consumer advocates could test whether the OCC followed proper procedures under the Administrative Procedure Act and whether Section 25b truly supports preemption of a fee restriction this narrow. As of late May 2026, no lawsuit has been filed and no court has weighed in.
The order also does not directly govern state-chartered banks or credit unions. That gap creates the possibility of a fragmented market: a nationally chartered issuer could keep charging interchange on tax and tips while a state-chartered competitor in the same city could not. Whether that split actually materializes depends on how aggressively Illinois enforces the IFPA against institutions outside the OCC’s jurisdiction, and whether those institutions process enough card volume for the distinction to matter to merchants.
What Merchants and Other States Should Expect Now
For Illinois business owners who had budgeted for lower processing costs this summer, the relief is not coming from national bank issuers. Unless Congress or a federal regulator revisits interchange policy at the national level, those fees stay exactly where they are.
Some merchants may push state officials to enforce the IFPA against state-chartered banks, creating a partial and potentially confusing compliance landscape. Others may redirect their lobbying toward federal lawmakers, pressing for an expansion of the Durbin framework or a new rule that covers non-revenue transaction components like tax and gratuity.
Legislators in other states had been watching Illinois as a test case. The OCC’s preemption sends a clear signal: if your law touches the fee practices of nationally chartered banks, expect a federal override before the ink dries. The only realistic path to a nationwide change on swipe fees for taxes and tips now runs through Congress, not through state capitals. And Congress, which has debated interchange reform in various forms since the original Durbin Amendment passed in 2010, has shown little appetite for expanding that fight to credit cards or to the specific question of fees on non-revenue line items.
For now, the restaurant owner in Chicago will keep paying interchange on every dollar that crosses the card reader, whether that dollar ends up in the register, the state treasury, or a server’s pocket.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
