A server at a Chicago restaurant rings up a $50 dinner. The customer leaves a $15 tip and pays with a credit card. The restaurant’s payment processor charges interchange on the full $65, plus the sales tax. That means the restaurant is paying a bank fee on money that belongs to the server and money that belongs to the state of Illinois. The Illinois legislature passed a law to stop that. On May 22, 2026, the federal government killed it.
The Office of the Comptroller of the Currency issued two interim final actions that together block the Illinois Interchange Fee Prohibition Act (IFPA) and formally declare that federally chartered banks have broad authority to charge interchange fees. Both take effect June 30, 2026.
What the OCC actually did
The first action amends 12 CFR 7.4002, a section of federal banking regulation, to explicitly state that national banks hold authority to set non-interest charges and fees, including interchange fees on payment card transactions. The OCC described this as a clarification of “longstanding powers” banks already possess under the National Bank Act, not a new grant of authority.
The second action is a preemption determination aimed directly at the Illinois IFPA (815 ILCS 151/). That law carried two core restrictions: it prohibited interchange fees on the tax and gratuity portions of card transactions, and it limited how banks and card networks could use certain transaction data. The OCC’s order declares that federal law overrides the IFPA entirely. National banks and federal savings associations do not have to comply with it.
The agency justified acting before the IFPA could take hold by arguing that a patchwork of state-by-state rules on card fees would undermine the uniform federal framework governing how national banks operate.
Why interchange fees are such a flashpoint
Interchange has been one of the most contested costs in American commerce for more than a decade. Every card swipe generates a fee, typically between 1.5% and 3.5% for credit cards, paid by the merchant’s bank to the card-issuing bank. For a restaurant doing $1 million a year in card sales, that can mean $15,000 to $35,000 in interchange alone, before accounting for other processing charges.
Congress first intervened in 2010, when the Durbin Amendment to the Dodd-Frank Act capped debit card interchange fees for banks with more than $10 billion in assets and required networks to offer merchants routing choices. Since then, lawmakers have pushed to extend similar pressure to credit cards. The Credit Card Competition Act, introduced by Sens. Dick Durbin and Roger Marshall in 2023 and reintroduced in 2024, would require large card-issuing banks to offer at least two network options for processing credit transactions, a move supporters say would drive rates down through competition. That bill has not passed.
Meanwhile, Visa and Mastercard agreed in 2024 to a settlement valued at roughly $5.6 billion in a long-running merchant antitrust case over swipe fees, but a federal judge rejected the deal, calling it inadequate. That litigation remains unresolved.
Illinois took a narrower approach. Rather than targeting interchange rates broadly, the IFPA zeroed in on the transaction components where merchants saw the fee as most unfair: the sales tax they collect on behalf of the state and the tips their employees earn. Restaurants, bars, and other tipped-employee businesses stood to benefit most directly, since interchange on a generous gratuity adds to their processing costs without reflecting any additional banking service.
What this means for merchants and cardholders
For merchants in Illinois, the OCC’s preemption preserves the status quo. Interchange will continue to be calculated on the full transaction amount, tax and tip included, just as it is in every other state. Businesses that had anticipated lower processing costs under the IFPA will not see those savings unless the preemption is overturned.
Card-issuing banks and payment networks gain something arguably more valuable than the fee revenue itself: regulatory certainty. Had the Illinois law survived, it could have served as a template for other state legislatures. At least a handful of states had been watching the IFPA closely as a potential model for their own interchange restrictions. The OCC’s characterization of interchange as rooted in longstanding federal banking authority sends a clear signal that the agency views fee-setting as a core banking function that states cannot restrict without triggering preemption.
For consumers, the effects are murkier. The IFPA’s supporters argued that lower processing costs would eventually flow to diners through lower prices or better wages for tipped workers. The banking industry has long countered that interchange funds card rewards programs and fraud prevention systems that benefit cardholders. Neither the OCC’s materials nor the IFPA’s text included data projecting whether reduced interchange would have translated into lower menu prices, higher server wages, or simply wider margins for restaurant owners. The OCC has not published projected economic impacts of the fee rule.
Where the fight goes from here
Illinois state officials had not issued a formal response as of late May 2026. Whether the state attorney general or legislature will mount a legal challenge to the preemption order remains an open question, but the stakes extend well beyond one state. If the preemption stands, it effectively closes the most direct path states have tried to regulate interchange at the transaction level.
Both interim final actions are subject to a public comment period tied to their publication in the Federal Register. Because the full Federal Register text had not yet appeared at the time of the OCC’s announcements, the precise comment deadline is still pending. That comment period will reveal whether the OCC signals any willingness to modify the rules before they become permanent.
The broader fight over interchange is far from over. The Credit Card Competition Act remains active in Congress. The Visa-Mastercard antitrust litigation is ongoing. Merchant trade groups, including the National Association of Convenience Stores and the National Retail Federation, have long advocated for legislative and regulatory limits on interchange and are likely to weigh in during the comment period. What the OCC has done is draw a firm jurisdictional line: as long as interchange is treated as a federally authorized banking activity, states face a steep legal barrier to regulating it on their own. For merchants who hoped individual states could deliver relief, that barrier just got considerably higher.
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.
