Merchants in Illinois and potentially other states lost their best shot at reducing card-processing costs when the Office of the Comptroller of the Currency declared that national banks and federal savings associations do not have to follow the state’s new interchange fee restrictions. The OCC’s interim final order takes effect June 30, 2026, one day before Illinois’ Interchange Fee Prohibition Act kicks in on July 1. The timing is deliberate: the federal regulator moved to block the state law before it could touch a single transaction at a nationally chartered bank.
Why the OCC acted one day before Illinois’ fee ban
Illinois became the first state to pass a law that would ban interchange fees on the sales-tax and gratuity portions of card transactions. Senator Dick Durbin applauded the Illinois legislature for including the Interchange Fee Prohibition Act in its budget package. The law was originally set to take effect in 2025, but the state legislature amended it through Public Act 104-0004, pushing the start date to July 1, 2026.
The OCC’s response arrived on April 24, 2026, in the form of two interim final actions. The agency issued both an interim final rule clarifying bank powers under federal law and a separate interim final order focused specifically on preemption of the Illinois statute. By setting its own effective date at June 30, the OCC ensured that federally supervised banks would already be shielded before the state law could apply to any transaction.
The practical result is straightforward. Every national bank and federal savings association operating in Illinois, from the largest card issuers to community banks, can continue collecting interchange fees on the tax and tip portions of purchases. Through Bulletin 2026-17, supervised institutions were told they are “neither subject to nor required to comply” with the Illinois Interchange Fee Prohibition Act. That language leaves little room for voluntary compliance: the federal position is that the state law simply does not reach these institutions.
Bulletin 2026-17 and the scope of the preemption order
The OCC structured its actions to cover a wide range of federally chartered institutions. Bulletin 2026-17 explicitly states that the order applies to community banks, not just the large national issuers that process the bulk of card volume. That detail matters because community banks in Illinois might otherwise have faced pressure from state regulators or merchant groups to comply with the fee ban voluntarily, either to curry favor with local businesses or to avoid potential litigation over state law obligations.
In its accompanying news release, the agency framed the two interim final actions as necessary to prevent “imminent negative effects” on the banking system. The OCC did not quantify those effects or specify how interchange revenue might shift, but the use of an interim final format, which skips the usual notice-and-comment period, signals urgency. Banks can rely on the order immediately rather than waiting months for a standard rulemaking cycle to close, and the OCC can still solicit comments and adjust the rule later if needed.
The preemption order also clarifies that national banks may continue to structure card programs and fee arrangements under federal banking powers, even when state law attempts to target specific components of a transaction such as sales tax or gratuities. By characterizing the Illinois law as an obstacle to federally authorized banking activities, the OCC effectively warns other states that similar efforts will likely be met with the same response.
What the ruling means for merchants and state-chartered institutions
For merchants, the gap is significant. State-chartered banks and credit unions that are not supervised by the OCC may still fall under the Illinois law, depending on how state regulators interpret their own authority and how courts read the statute’s scope. That could leave merchants paying different interchange amounts depending on which bank issued a customer’s card, complicating efforts to forecast costs or negotiate processing contracts.
Larger retailers that already route a substantial share of volume through national-bank-issued cards may see little change in their overall fee burden once the law takes effect. Smaller merchants that rely more heavily on local, state-chartered institutions could see a modest reduction in costs on the tax and tip portions of transactions, but only if those institutions are required-or choose-to comply with the state restrictions.
The split treatment may also influence future business decisions. Merchants that hoped Illinois’ law would materially lower their card-acceptance costs now face an incentive to steer customers toward cards issued by state-regulated institutions, if such steering is feasible and permitted under network rules. Conversely, national banks retain a competitive advantage in interchange revenue, which could make them more aggressive in marketing cards within Illinois, further diluting any savings merchants might have realized.
Illinois policymakers, for their part, must decide whether to challenge the OCC’s preemption determination or adjust the statute to avoid direct conflict with federal banking authority. Other states considering similar legislation will be watching closely. If the OCC’s interim actions stand, the practical reach of any state-level interchange reform may be confined largely to state-chartered banks and credit unions, limiting the impact on the national card market where interchange policy is ultimately set.
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.
