Every time you tap your card at a grocery store, a gas pump, or a coffee counter, a slice of what you pay goes not to the merchant but to the bank that issued your card. In Illinois, a new state law was supposed to start shrinking that slice on July 1, 2026. With 39 days to go, the federal agency that oversees the nation’s largest banks has stepped in and said: not so fast.
The Office of the Comptroller of the Currency published an interim final rule and companion order in late May 2026 declaring that federal law preempts the Illinois Interchange Fee Prohibition Act for every nationally chartered bank and federal savings association. That covers JPMorgan Chase, Bank of America, Wells Fargo, Citibank, and thousands of other institutions regulated by the OCC. None of them will have to comply with the state’s fee restrictions, even after the law officially takes effect.
The decision does not just affect Illinois. It sets a federal marker that could block any state from capping the interchange fees that merchants say inflate the price of nearly everything Americans buy.
What the OCC actually did
The agency moved on two tracks at once. The interim final rule establishes, as binding federal regulation, that state laws restricting interchange fees charged by national banks are preempted under the National Bank Act and the Home Owners’ Loan Act. The companion order applies that principle directly to the Illinois IFPA.
A separate supervisory bulletin (OCC Bulletin 2026-17) spelled it out for compliance departments: nationally chartered banks are “neither subject to nor required to comply with” the Illinois law. The OCC considers the question settled for every institution it supervises.
The rule carries a 60-day public comment period, giving opponents a formal window to challenge the agency’s reasoning before any potential litigation.
Why interchange fees matter far beyond Illinois
Interchange fees are the tolls embedded in virtually every card transaction in the U.S. economy. When a retailer accepts a Visa or Mastercard payment, the merchant’s acquiring bank pays a fee to the bank that issued the customer’s card. Merchants absorb that cost and, because they cannot easily charge card users more than cash users in most settings, pass it along through higher shelf prices for everyone.
The numbers are enormous. The Nilson Report, the payment industry’s most widely cited data source, estimated that U.S. merchants paid more than $160 billion in card-acceptance costs in 2023, a figure that has climbed year over year as card volume grows. The Nilson Report has not yet published a final 2024 total, but analysts expect it to be higher still.
Those costs do not stay behind the register. A 2010 Federal Reserve Bank of Boston working paper by Scott Schuh, Oz Shy, and Joanna Stavins, titled Who Gains and Who Loses from Credit Card Payments?, found that because interchange fees are baked into retail prices, cash-paying customers effectively subsidize the rewards programs enjoyed by credit-card holders. Lower-income households, which are less likely to carry premium rewards cards, bear a disproportionate share of that hidden cost. The paper’s core finding has been cited repeatedly in Congressional testimony and remains a touchstone in the swipe-fee debate more than 15 years later.
What the Illinois law was designed to do
The Illinois Interchange Fee Prohibition Act, signed into law in 2025, targeted the interchange fees that banks collect on both debit and credit card transactions with Illinois merchants. The statute aimed to prohibit fees on the tax and tip portions of a transaction and to restrict certain fee practices that merchant groups argued were inflating costs without justification.
Congress had partially addressed interchange on the debit side in 2010 through the Durbin Amendment to the Dodd-Frank Act, which directed the Federal Reserve to cap debit-card interchange fees for banks with more than $10 billion in assets. But credit-card interchange was left untouched at the federal level, and merchant trade groups, including the National Retail Federation and the National Association of Convenience Stores, have long argued that the Fed set even the debit caps too high. The Illinois IFPA represented the most aggressive state-level attempt to fill that gap.
The precedent problem for every other state
Illinois is not alone in trying to rein in swipe fees. Legislators in New York, California, and other states have introduced interchange-related bills in recent legislative sessions. In Congress, Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS) have repeatedly introduced the Credit Card Competition Act, which would require large card-issuing banks to enable merchants to route transactions over at least two unaffiliated processing networks, breaking the Visa-Mastercard duopoly on routing. The bill was reintroduced in the 118th Congress in 2023 but never reached a floor vote, and its prospects in the current session remain uncertain.
The OCC’s preemption decision undercuts the state-level strategy entirely. If a state interchange cap cannot survive federal preemption when applied to nationally chartered banks, and those banks handle the vast majority of U.S. card volume, then state legislation can only reach a small fraction of the market. Meaningful change to the fee structure would have to come from Congress, the Federal Reserve, or another federal agency with broader jurisdiction, such as the Consumer Financial Protection Bureau.
Visa and Mastercard, the two networks that set the interchange rate schedules banks rely on, have not issued public statements on the OCC’s action as of late May 2026. Both companies have historically opposed state-level fee regulation while defending interchange as compensation that funds fraud protection, payment infrastructure, and cardholder rewards.
What the preemption does not cover
The OCC’s authority extends only to national banks and federal savings associations. State-chartered banks, credit unions supervised by the National Credit Union Administration, and other non-OCC institutions fall outside the interim rule. In theory, the Illinois IFPA could still apply to those entities when it takes effect on July 1.
Whether Illinois regulators or the state attorney general will attempt to enforce the law against that smaller group remains an open question. No public statements from state enforcement officials have appeared as of late May 2026. For merchants, the practical math is stark: the banks issuing the overwhelming majority of Visa and Mastercard transactions in Illinois hold national charters and are now shielded from the law.
The OCC also did not publish data on how much interchange revenue its regulated banks collect on Illinois transactions, and no independent economic-impact analysis accompanied the bulletin. Without those numbers, it is difficult to quantify exactly how much money will continue flowing from Illinois merchants and consumers to nationally chartered banks because of the preemption.
Legal challenges could still change the picture
Federal preemption disputes have a long, contentious history in banking law. The Supreme Court’s 1996 decision in Barnett Bank v. Nelson established a broad standard for when federal banking powers override state restrictions, and the OCC’s new rule leans heavily on that framework. But the agency has been checked before. In Cuomo v. Clearing House Association (2009), the Court ruled the OCC had overstepped by trying to block state attorneys general from enforcing fair-lending laws against national banks.
A legal challenge to the interchange preemption could test whether the OCC’s reading of its statutory authority holds up, particularly if plaintiffs argue the agency is shielding bank revenue rather than safeguarding a core banking power. No lawsuit had been filed as of late May 2026, but the 60-day comment period gives opponents a formal channel to build a public record before heading to court.
What Illinois merchants and shoppers face on July 1
For Illinois consumers who expected lower prices after July 1, the OCC’s move is a concrete setback. The interchange fees folded into the price of groceries, gasoline, clothing, and nearly every other retail purchase will continue at current levels for transactions processed through nationally chartered banks. Merchants who backed the IFPA as a way to cut operating costs and pass savings to customers are left waiting for either a court ruling, a shift in federal policy, or new legislation in Washington.
Anyone who wants to check whether a specific bank falls under the OCC’s preemption can use the agency’s charter-search tool, which confirms whether an institution holds a national charter. The OCC’s enforcement-action database offers a window into how aggressively the agency has policed related compliance obligations in the past.
The result, for now, is a split regime. The largest banks in the country can keep charging interchange fees in Illinois exactly as they do in every other state. A smaller group of state-supervised institutions must decide whether to adjust their practices or wait for further legal clarity. And the broader national question of who profits from the cost of paying with a card sits where it has sat for years: unresolved, expensive, and paid for at every checkout counter in America.
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.
