A server at a Chicago restaurant earns a $20 tip on a credit card. Before that money reaches her, the bank that issued the customer’s card skims a percentage off the top as an interchange fee. Starting July 1, 2026, Illinois law was supposed to stop banks from collecting that cut on tips and sales tax. Now, for every national bank and federal savings association in the country, that protection is dead on arrival.
The Office of the Comptroller of the Currency published an interim final order in May 2026 declaring that federal law preempts the Illinois Interchange Fee Prohibition Act for the institutions it supervises. The order took effect immediately, with a public comment period running in parallel. The practical result: the nation’s largest card-issuing banks are shielded from the Illinois law before it can be enforced. And the order’s reasoning applies far beyond one state. Any legislature that tries to cap swipe fees will run into the same federal wall.
What interchange fees actually cost you
Every time you tap, swipe, or insert a credit card, the merchant pays an interchange fee to the bank that issued your card. For credit card transactions, these fees typically fall between 1.5% and 3.5% of the total, though debit card interchange is generally lower, especially for large issuers subject to existing federal caps. The fees never appear as a line item on your receipt, but merchants pass them along in higher shelf prices. You pay them whether you use a card or not.
The scale is enormous. U.S. merchants paid roughly $101 billion in Visa and Mastercard processing fees in 2023, according to the Nilson Report, a payments industry research publication. That figure includes interchange fees as well as network assessments and acquirer markups, making card-acceptance costs one of the largest operating expenses for retailers after labor and rent. The Merchants Payments Coalition, a trade group that lobbies on behalf of retailers, has estimated that swipe fees add more than $1,000 a year to the average American household’s spending. Banking industry groups dispute that number, arguing that interchange funds fraud protection, rewards programs, and payment infrastructure that benefits consumers. But even skeptics of the $1,000 figure acknowledge that interchange is a significant, hidden cost embedded in everyday prices.
Illinois lawmakers zeroed in on a specific slice of that cost. The Interchange Fee Prohibition Act, enacted as Public Act 104-0004 and codified at 815 ILCS 151, would have barred card issuers from collecting interchange on the sales tax and gratuity portions of a transaction. The logic was simple: a bank should not earn a percentage-based fee on money that belongs to the state treasury or to a worker’s tip. Merchants would still pay interchange on the underlying purchase price, but the add-ons would be off limits.
How the OCC shut it down
The OCC’s order, described in an accompanying news release, invokes federal preemption principles that have governed national bank regulation for decades. National banks and federal savings associations operate under powers granted by Congress, and the OCC concluded that Illinois’s restrictions on interchange collection would “significantly interfere” with those federally authorized banking activities. Because the order is labeled “interim final,” it carries the force of law now, even as the agency solicits public comments that could lead to modifications later.
Agency officials framed the move as preserving uniform national standards. Allowing one state to carve out portions of a transaction from interchange calculations, they argued, would create an unworkable patchwork for banks that process millions of card payments across state lines every day. That reasoning carries weight in a payments system built on speed and standardization. It also means the federal government chose to protect bank revenue streams over a state legislature’s attempt to lower costs for merchants and, by extension, the customers who absorb those costs at the register.
The gap in federal oversight that made Illinois act
Federal regulation of interchange is not new, but it has a glaring blind spot. The Durbin Amendment, enacted as part of the 2010 Dodd-Frank Act and codified at 15 U.S.C. Section 1693o-2, directed the Federal Reserve to ensure that debit card interchange fees charged by large issuers are “reasonable and proportional.” The resulting Regulation II (12 CFR Part 235) caps certain debit interchange fees and requires merchants to have a choice of at least two unaffiliated networks for routing debit transactions.
Credit card interchange has no comparable federal cap. Visa and Mastercard set those rates through schedules negotiated with issuing banks, and the fees have climbed steadily. Senators Roger Marshall and Dick Durbin have repeatedly introduced the Credit Card Competition Act, which would extend network-routing competition requirements to credit cards, but the bill has stalled in every session amid heavy lobbying from the banking and card-network industries.
Meanwhile, a federal judge in 2024 rejected a proposed $30 billion antitrust settlement between Visa, Mastercard, and a class of merchants, ruling that the deal did not adequately address the underlying competitive concerns around interchange pricing. That rejection left merchants without the modest fee relief the settlement would have provided and reinforced the sense among state lawmakers that federal action was not coming.
Illinois tried to fill part of that gap, however narrowly, by targeting the tax and tip portions of all card transactions. The OCC’s preemption order closes that door for federally chartered banks without offering any alternative consumer protection in its place.
Who the order does not cover
The OCC supervises national banks and federal savings associations. It does not regulate state-chartered banks, credit unions, or other financial institutions. That means the IFPA could still apply to those entities after July 1, creating a split market in Illinois where some card issuers must exclude taxes and tips from their interchange calculations while their federally chartered competitors do not.
For a restaurant owner in Springfield, that split could look like this: a customer paying with a card issued by a national bank generates a full interchange charge on the entire bill, tax and tip included. A customer paying with a card from a state-chartered community bank or credit union triggers a smaller fee, with the tax and tip portions excluded. The merchant has no control over which card a customer pulls out, so the savings are unpredictable and partial at best. For consumers, the promised relief on swipe fees may show up only on a fraction of transactions, if it shows up at all.
What this means for every state considering interchange limits
As of late May 2026, Illinois lawmakers and state regulators have not released public statements responding to the OCC’s preemption order. The state has several options. It could mount a legal challenge testing whether the OCC overstepped its preemption authority in this specific context. It could pursue legislative workarounds designed to avoid triggering the “significant interference” standard the agency relied on. Or it could accept the federal override for national banks and enforce the IFPA only against institutions within its own regulatory reach.
A court fight would be closely watched. Federal preemption of state banking laws is well-established in broad strokes, but its application to interchange fee restrictions has not been tested in litigation. The outcome could define how much room states have to regulate card payment costs at all.
Other countries have already answered that question differently. The European Union capped credit card interchange at 0.3% of the transaction value in 2015. Australia’s Reserve Bank has regulated interchange since 2003, with a current weighted-average benchmark of 0.51% for credit cards. Both markets still have functioning card networks, rewards programs, and fraud protections, though the structure of those programs has shifted.
In the United States, the path forward is narrower. Several state legislatures have explored interchange fee caps or transparency requirements in recent sessions, driven by merchant lobbying and consumer frustration with rising prices. The OCC’s willingness to preempt Illinois before the law even took effect sends an unambiguous message to all of them. Until Congress extends Durbin-style regulation to credit cards, passes the Credit Card Competition Act, or sets new limits on interchange through some other vehicle, the fees built into every purchase you make will remain set by card networks and banks. No state can touch them for federally chartered institutions, and no federal agency is stepping in to do it instead.
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.
