Merchants across Illinois who expected relief from card-processing fees on taxes and tips now face a federal wall. The Office of the Comptroller of the Currency issued an interim final order that preempts core provisions of the Illinois Interchange Fee Prohibition Act as applied to national banks and federal savings associations. The order, published at 91 Fed. Reg. 23150 through 23158, strips the state’s ability to enforce its ban on interchange fees charged on the tax and gratuity portions of card transactions, along with related transaction-data restrictions. Illinois had already pushed the law’s start date to July 1, 2026, through Public Act 104-0004, but the federal action landed first.
Federal preemption collides with Illinois swipe-fee law
The OCC’s move carries immediate weight for every restaurant, bar, and retail shop in Illinois that processes card payments through a nationally chartered bank. The state law was designed to stop card networks and issuers from collecting interchange fees on the portion of a transaction that covers sales tax or a customer tip. For a sit-down dinner where the check includes both, those extra fractions of a percent add up across thousands of daily transactions statewide. The agency’s detailed analysis appears in OCC Bulletin 2026-17, which declares that both the interchange-fee ban on tax and gratuity amounts and the act’s transaction-data restrictions are preempted for institutions the agency supervises.
The practical result: national banks can continue charging swipe fees on the full transaction amount, including taxes and tips, regardless of what Illinois law says. State-chartered banks and credit unions, which fall outside OCC jurisdiction, could still be subject to the state statute once it takes effect. That split creates an uneven playing field where the fee rules a merchant faces depend on which bank issued the customer’s card.
For merchants, the stakes are not abstract. A neighborhood café that runs most of its sales through cards may see hundreds or thousands of dollars a year in fees tied solely to sales tax and voluntary tips. The Illinois law aimed to carve those amounts out, arguing that card issuers should not collect interchange on money that never reaches the merchant as revenue. With the OCC order in place, that relief is off the table for cards issued by national banks unless a court overturns the federal preemption.
A broader question looms for state legislatures watching from the sidelines. If a federal regulator can preempt the first state-level interchange-fee ban before it even takes effect, lawmakers in other states weighing similar bills have a concrete signal about the limits of their authority. One testable prediction: the number of new state-level interchange-fee bills introduced over the next 18 months will drop measurably compared to the pace before this order, a pattern that bill-tracking databases could confirm by cross-referencing OCC bulletin dates with legislative filings.
OCC order, Durbin amicus brief, and the July 2026 deadline
Three distinct documents anchor the dispute. The OCC’s interim final order, formally titled “Preemption of Illinois Interchange Fee Prohibition Act: Interim Final Order,” was published in the Federal Register at 91 Fed. Reg. 23150 through 23158. It invokes the agency’s authority under the National Bank Act to shield federally chartered institutions from state laws that conflict with their powers. The order concludes that the Illinois act significantly interferes with national banks’ ability to set and collect interchange fees, a core component of their card-issuing business.
On the legislative side, the Illinois General Assembly passed Public Act 104-0004, which amended the Interchange Fee Prohibition Act’s effective date to July 1, 2026. That delay was framed as a way to give issuers, processors, and merchants time to retool their systems so they could identify and exclude tax and tip amounts from interchange calculations. Instead, the extra runway now overlaps with a period in which the state’s authority is sharply constrained for nationally chartered institutions.
The third piece comes from Washington. Senator Dick Durbin, a long-time critic of card-industry fee practices, filed an amicus brief supporting Illinois in the underlying litigation and later praised a ruling that upheld the act against early challenges. Durbin has argued that allowing interchange on taxes and tips inflates costs for small businesses and consumers while delivering windfalls to large banks and card networks. The OCC order cuts in the opposite direction, emphasizing uniform national standards for federally chartered banks over state efforts to narrow the fee base.
This clash between state consumer-protection goals and federal banking preemption is not new, but the Illinois case gives it a fresh, highly specific context. On one side, state lawmakers assert a targeted power to define which parts of a retail transaction are fair game for card fees. On the other, the OCC maintains that once a charge is part of a card transaction, national banks must be free to price and collect interchange across the full amount without a patchwork of state carve-outs.
What happens next will likely unfold on multiple tracks. Illinois regulators can still prepare to enforce the act against state-chartered institutions in 2026, setting up a dual regime in which some cards trigger reduced fees on taxes and tips and others do not. Industry groups may challenge the state law more broadly, seeking to extend preemption arguments beyond OCC-supervised entities. And in Congress, Durbin and allies could point to the Illinois experience as they press for nationwide limits on interchange fees that would sidestep the preemption fight altogether.
For now, merchants are left in limbo. The statute they were told would lower their costs has been delayed and partially neutralized before it ever took effect, while federal regulators and state officials continue to spar over who gets to decide how much of a restaurant tab or retail receipt can be swept into the card-fee system. Until that question is resolved, every Illinois transaction that includes tax and a tip will remain a small but telling battleground in the larger war over swipe fees.
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.
