Illinois restaurant owners spent months reprogramming point-of-sale terminals and renegotiating processing contracts, all to prepare for a state law that would have stopped banks from collecting swipe fees on the tax and tip portions of credit card transactions. That law was set to kick in on July 1, 2026. It will never apply to the banks that handle most of the country’s card volume.
On June 30, one day before the Illinois statute takes effect, the Office of the Comptroller of the Currency will begin enforcing an interim final rule and a preemption order that block the state from capping interchange fees charged by nationally chartered banks and federal savings associations. The rule’s language is not limited to Illinois. It is written broadly enough to reach any state that attempts something similar.
Two coordinated actions under one announcement
The OCC issued a pair of regulatory actions that work in tandem. The first is an interim final rule that writes into the Code of Federal Regulations a national bank’s authority to charge what the agency calls “non-interest charges and fees.” That category now explicitly includes fees set through contractual arrangements with card networks like Visa and Mastercard. The legal significance is substantial: card networks technically publish wholesale interchange rate schedules, but the OCC is treating those charges as part of the issuing bank’s own fee authority under the National Bank Act. By codifying that interpretation, the agency is placing network-based interchange beyond the reach of state-level caps.
The second action is a preemption determination that names the Illinois Interchange Fee Prohibition Act directly and declares it inapplicable to any OCC-supervised institution. This is not informal guidance. It is a binding order grounded in the federal preemption framework established by 12 U.S.C. § 25b, which gives the OCC authority to preempt state laws that “prevent or significantly interfere with” a national bank’s exercise of its powers.
The agency reinforced both actions through Bulletin 2026-17, which tells supervised institutions in plain terms that they “are neither subject to nor required to comply with the Illinois IFPA.” The bulletin identifies two specific provisions being overridden: restrictions on charging interchange on the tax and gratuity portions of a transaction, and limits on how card issuers can use or share transaction data linked to those fees. For banks, the directive is straightforward: keep assessing interchange on the full ticket amount, tips and tax included.
Why the timing is deliberate
Illinois lawmakers passed Public Act 104-0004, setting the IFPA’s effective date as July 1, 2026. The OCC’s June 30 enforcement date ensures that nationally chartered banks never face even a single day of compliance obligations under the state law. The one-day gap is not an accident. It is a regulatory maneuver designed to prevent any ambiguity about which rules apply and when.
The financial stakes are easier to see at the transaction level. On a $100 dinner tab that includes $8 in sales tax and a $20 tip, a merchant typically pays somewhere between $2.50 and $3.50 in credit card interchange on the full $128 charge, based on prevailing Visa and Mastercard rate schedules. Under the Illinois law, interchange would have applied only to the $100 base price, saving the merchant roughly $0.70 to $1.00 on that single transaction. Spread across thousands of daily card payments at restaurants, salons, and retail stores statewide, those per-transaction savings would have added up to meaningful relief for small businesses operating on thin margins.
The Illinois Restaurant Association, which backed the IFPA, has publicly expressed frustration with the federal action, arguing that its members had invested real money preparing for the July 1 changes. Consumer advocacy organizations, including groups that have long pushed for interchange reform, have characterized the OCC’s move as prioritizing bank revenue over a state legislature’s decision to protect small businesses. The OCC, for its part, has framed the rule as a necessary step to maintain the uniformity of the national banking system and prevent a patchwork of state-level fee restrictions.
Who the Illinois law still covers
The OCC’s jurisdiction extends only to nationally chartered banks and federal savings associations. State-chartered banks and credit unions, regulated by state authorities and the FDIC or NCUA respectively, could still be bound by the IFPA when it takes effect on July 1. But the largest card-issuing banks in the country, including JPMorgan Chase, Bank of America, Citibank, and Wells Fargo, all hold national charters. According to the Federal Reserve’s most recent Payments Study, the largest nationally chartered banks account for a disproportionate share of U.S. credit card transaction volume. That imbalance means most card payments in Illinois will continue to carry interchange on the full amount, even if a smaller group of community banks and credit unions follows the state’s restrictions.
This creates a split market that merchants will have to navigate. A card issued by a local state-chartered bank might carry reduced fees on tips and tax. A Chase Visa card swiped at the same terminal will not. Unless the FDIC or NCUA issues parallel guidance, or unless Illinois successfully challenges the OCC’s order in court, this two-tier system will be the reality on the ground for the foreseeable future.
A warning shot aimed at every statehouse
Illinois is not the only state where lawmakers have explored capping or restructuring interchange fees. Merchant trade groups, including the National Retail Federation and the Merchants Payments Coalition, have pushed for interchange reform at both the state and federal level for over a decade. The most prominent federal proposal, the Credit Card Competition Act, has been introduced in Congress in 2022, 2023, and 2024. It would require large card-issuing banks to offer merchants a choice of at least two unaffiliated processing networks, with the goal of driving down fees through competition. The bill has not passed in any session.
The OCC’s interim final rule, while triggered by the Illinois law, uses language that extends well beyond one state. Its definition of permissible “non-interest charges and fees” and its assertion of preemption authority under the National Bank Act would logically apply to any future state law that attempts to cap interchange for nationally chartered banks. For state legislators considering their own versions of the IFPA, the message from the federal banking regulator is unambiguous: this agency will intervene to protect national banks’ fee-setting authority.
That posture fits a broader pattern. The OCC has historically used preemption to shield national banks from state lending laws, state licensing requirements, and state fee restrictions. But interchange regulation occupies a gray zone that has not been fully tested in court. The 2010 Dodd-Frank Act tightened the standard for OCC preemption, requiring the agency to act on a “case-by-case basis” and demonstrate that a state law actually prevents or significantly interferes with a national bank’s powers. Whether the OCC’s blanket rule satisfies that standard is a question that could end up before a federal judge.
What remains unresolved
As of June 2026, several critical questions are still open. The Illinois attorney general’s office and the governor have not publicly stated whether they plan to challenge the OCC’s preemption order in court. A legal challenge could test whether the agency overstepped the Dodd-Frank preemption standard, particularly given that interchange fee regulation sits at the intersection of federal banking powers and state consumer protection law.
Neither the FDIC nor the NCUA has indicated whether it will issue similar preemption guidance for the state-chartered banks and credit unions under its supervision. Without parallel federal action, those institutions remain subject to the Illinois IFPA, deepening the split market that merchants will face.
The OCC has not released examination data or fee-schedule filings showing how national banks plan to adjust their practices under the new rule, though the practical answer is almost certainly that nothing changes: banks will continue charging interchange on full transaction amounts, exactly as they have for years. And while the rule’s language implies it would block similar laws in other states, that theory has not been tested in a concrete dispute outside Illinois.
What this means for the merchant waiting on July 1
For the restaurant owner in Springfield who reconfigured her payment system to separate tips and tax from the base charge, or the Chicago retailer who told staff that processing costs were about to drop, the OCC’s June 30 rule erases those plans overnight. The state law they lobbied for still exists on paper. It will still bind a small slice of the banking system. But for the nationally chartered banks that dominate card issuing in the United States, the federal government has made its position clear: interchange is a national bank power, and no state legislature gets to shrink it.
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.
