A server at a Chicago restaurant rings up a $100 dinner tab. The customer leaves a $25 tip on a credit card, and the bill includes $10.25 in sales tax. Under a new Illinois law taking effect July 1, 2026, the restaurant’s card-processing fee should be calculated on the $64.75 food-and-drink total alone, not the full $135.25 charge. Whether that actually happens depends on a question most diners never think about: which type of bank issued the card in their wallet.
With 31 days until the Illinois Interchange Fee Prohibition Act goes live, the Office of the Comptroller of the Currency has declared that nationally chartered banks and federal savings associations do not have to comply. According to the agency’s published bulletin, the OCC’s interim final order, released in late May 2026, invokes federal preemption to override the state statute for every institution operating under a federal charter. Because the largest U.S. credit card issuers, including JPMorgan Chase, Bank of America, Citibank, Wells Fargo, and Capital One, all hold national charters, the practical effect is stark: the Illinois law’s restrictions now apply to a fraction of the cards customers actually use.
What the OCC order actually says
The OCC’s language leaves little room for ambiguity. According to the agency’s guidance bulletin, national banks and federal savings associations are “neither subject to nor required to comply” with the Illinois law. That exemption is not limited to megabanks; it extends to any community bank holding a national charter.
In a separate news release, the OCC called the Illinois statute “complex, potentially unworkable” and confirmed the state law’s July 1, 2026 effective date. The agency issued two interim final actions simultaneously: one preempting the Interchange Fee Prohibition Act and another clarifying national bank powers under existing federal law. Read together, the documents make clear that the OCC views the Illinois measure as a direct conflict with the fee-setting authority Congress granted to federally chartered institutions.
The order also raises operational objections. To comply with the Illinois law, card issuers would need to identify and strip out tax and tip components from every covered transaction in real time, then recalculate interchange on the remaining amount. The OCC argues that this level of transaction parsing across multiple card networks and merchant categories could introduce settlement errors, increase disputes, and produce inconsistent treatment of similar purchases depending on how merchants code their sales data.
What interchange is and why tips and taxes matter
Interchange is the fee a merchant’s bank pays to the cardholder’s bank every time a customer swipes, taps, or dips a credit or debit card. Merchants rarely see the charge itemized on a single receipt, but it shows up on their monthly processing statements, typically running between 1.5% and 3% of each transaction depending on the card network, card type, and merchant category. The Federal Reserve has reported that the average U.S. credit card interchange rate sits at roughly 2% of transaction value.
The Illinois law targets a specific and politically resonant slice of that cost. It prohibits interchange from being calculated on the sales-tax or voluntary-gratuity portion of a transaction. The reasoning: sales tax is money a merchant collects on behalf of the state, and tips are wages that pass through to workers. Neither amount represents merchant revenue, yet under standard interchange pricing, both inflate the base on which swipe fees are charged.
For restaurants, where tips routinely equal or exceed the food total, the potential savings are real. Consider that same $135.25 Chicago dinner check. At a 2% interchange rate, the restaurant pays roughly $2.71 on the full amount. Exclude the $25 tip and $10.25 in tax, and the fee drops to about $1.30 on the $64.75 base. Multiply that $1.41 difference across hundreds of transactions a day, and the annual impact for a single busy restaurant could run into tens of thousands of dollars.
Who the law still covers, and who it does not
The OCC’s preemption order carves out the majority of card-issuing volume. The five largest nationally chartered banks alone account for more than half of all U.S. credit card purchase volume, according to the Nilson Report. That means the Illinois law’s restrictions now apply only to state-chartered banks and credit unions that issue cards within the state’s jurisdiction.
The result is a two-track system: a merchant’s interchange cost on any given transaction depends on which institution issued the customer’s card, not on the merchant’s location or business type. The statute covers both credit and debit cards when the issuer falls under state jurisdiction. It prohibits those issuers from charging or receiving interchange calculated on sales tax or voluntary tips, requires them to adjust processing arrangements so the fee-eligible base excludes those amounts, and authorizes state regulators to investigate merchant complaints and impose penalties for noncompliance.
One wrinkle worth noting: Visa’s network operating regulations have historically allowed merchants to exclude tips from the authorized transaction amount on signature-based credit card purchases, but compliance has been inconsistent and the provision does not cover sales tax. The Illinois law goes further by making the exclusion mandatory for covered issuers on both tax and tip amounts, across all card types.
The two-track problem for merchants
In practice, this split means an Illinois restaurant could see different effective rates on two otherwise identical $100 checks depending solely on the card presented. If a customer pays with a card issued by a state-chartered bank, interchange on the tax and tip portions is barred. If the next customer uses a card from a nationally chartered bank, the full-amount interchange applies unless that bank voluntarily mirrors the state standard.
That inconsistency complicates accounting, muddies the savings merchants were promised, and raises a competitive question that no one in the payments industry has publicly addressed: will the fee differential push merchants to steer customers toward certain cards, or will it give state-chartered issuers a marketing edge with merchant-friendly pricing? The National Retail Federation, which has long advocated for lower interchange costs, has not issued a public statement on the OCC’s preemption order as of early June 2026. The Illinois Restaurant Association, whose members stand to be most directly affected, has likewise not released a formal response.
Card networks and large processors have not publicly detailed how they plan to operationalize the split regime. Networks could, in theory, offer optional programs allowing national banks to adopt Illinois-style exclusions voluntarily. They could also design standardized transaction codes for tax and tip components to reduce the complexity the OCC highlighted. But as of early June 2026, no public announcements indicate that such programs are ready to launch alongside the law’s effective date.
For debit cards specifically, there is an additional layer. The Durbin Amendment, enacted as part of the 2010 Dodd-Frank Act, already caps debit card interchange for issuers with more than $10 billion in assets. That means the Illinois law’s debit provisions are partially redundant for the largest banks, which are already subject to federal interchange limits and, under the OCC order, exempt from the state law anyway. The state law’s debit impact is concentrated on smaller state-chartered issuers not covered by Durbin’s asset threshold.
What remains uncertain
The Illinois Attorney General’s office and the state Department of Financial and Professional Regulation have not publicly responded to the OCC’s preemption order as of early June 2026. That silence leaves open whether the state plans to challenge the federal action in court, pursue a legislative workaround, or simply enforce the law against the narrower set of state-chartered institutions still covered.
There is also no publicly available transaction-level data showing how much interchange revenue collected in Illinois is currently tied to tip and sales-tax amounts. Without that baseline, estimating the dollar impact on merchants or the revenue at stake for card-issuing banks involves significant guesswork.
The broader national context adds another layer. Illinois is not the only state where lawmakers have explored interchange reform. Legislatures in at least a handful of other states have introduced or studied similar measures targeting swipe fees on non-revenue transaction components. If the Illinois model survives legal challenge or inspires copycat legislation, the OCC’s preemption stance could face repeated tests. If it does not, the episode may become a reference point for how federal banking authority can limit state-level payment reform before it takes hold.
A narrower rollout than Illinois lawmakers described
For now, restaurants, retailers, and consumers in Illinois should expect a patchwork outcome rather than the across-the-board change lawmakers described when the Interchange Fee Prohibition Act passed. Unless the state successfully challenges the OCC’s preemption or Congress intervenes, the July 1, 2026 rollout will mean that only cards issued by state-chartered institutions stop charging interchange on tax and tip amounts.
That narrower reach still represents a meaningful shift for some transactions. A restaurant whose customer base skews toward local credit unions or community banks with state charters will see real savings. But for the majority of card volume flowing through nationally chartered issuers, the status quo holds. Merchants who built their expectations around the full scope of the Illinois law will need to recalibrate. And advocates pushing for interchange reform in other states now have a concrete example of the federal preemption barrier they will need to navigate, or overcome, to make similar laws stick.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
