Leave a 20% tip on a restaurant tab paid by credit card, and your server is not the only one collecting. The bank that issued your card takes a small cut of the entire transaction through what the industry calls an interchange or “swipe” fee. That fee is calculated on the full amount: the meal, the sales tax, and the gratuity. Illinois tried to stop that practice. A new state law was set to prohibit banks and payment networks from charging interchange on the tax and tip portions of card transactions starting July 1, 2026. A federal regulator blocked it with one day to spare.
On April 29, 2026, the Office of the Comptroller of the Currency published an interim final rule and a companion preemption order that together prevent states from restricting the interchange fees national banks and federal savings associations charge on tips and sales taxes. Both take effect June 30, 2026. The signal to every statehouse weighing similar legislation is direct: if a bank holds a federal charter, federal rules govern what it can charge.
How interchange fees work and why they matter
Every time a customer swipes, taps, or inserts a credit or debit card, the merchant’s bank pays a fee to the cardholder’s bank. Card networks like Visa and Mastercard set those fees, which generally fall between roughly 1.5% and 3.5% of the transaction total depending on the card type, merchant category, and network, according to approximate industry data reported in sources such as the Nilson Report and the Federal Reserve Payments Study. The fee is calculated on the entire charge, not just the price of the goods or services.
Here is what that looks like in practice. On a $100 dinner check with $8 in sales tax and a $20 tip, the interchange fee applies to the full $128. At a 2.5% rate, that is $3.20. If the fee applied only to the $100 meal, it would be $2.50. The 70-cent difference on a single check is easy to dismiss. “You look at one ticket and think it is nothing,” said Maria Delgado, who owns a 90-seat Mexican restaurant in Chicago’s Pilsen neighborhood. “Then you look at your processing statement at the end of the month and realize you paid hundreds of dollars in swipe fees just on the tax and tip lines. That is money that came out of my pocket for amounts I never kept.”
Merchant trade groups have argued for years that charging swipe fees on taxes a business merely collects for the government, and on tips that pass through to workers, lets banks skim revenue they played no role in generating. That argument drove the Illinois Interchange Fee Prohibition Act, enacted as Public Act 104-0004 and codified at 815 ILCS 151/150-10. The law would have barred issuers, networks, acquirers, and processors from collecting interchange on the tax or gratuity portion of an electronic payment whenever a merchant transmits that breakdown during authorization or settlement.
Brian Riley, a payments analyst at Javelin Strategy & Research, said the OCC’s move was predictable. “National banks were never going to accept a patchwork of state laws telling them which cents on a transaction they can and cannot earn a fee on,” Riley said. “The preemption playbook here is straight out of the National Bank Act.”
What the OCC’s rule and preemption order actually do
The OCC’s interim final rule amends the federal regulation at 12 CFR 7.4002 to affirm that national banks hold the authority to set non-interest charges and fees, including interchange fees on the tax and gratuity components of card transactions. It applies nationwide to every federally chartered bank and federal savings association, regardless of what any state legislature has passed or is considering.
The paired preemption order targets the Illinois statute by name. In a public statement, the OCC called the Illinois law’s requirements “complex, potentially unworkable” and concluded that federal law preempts the state statute for institutions under the agency’s jurisdiction. The legal foundation is the National Bank Act, which grants federally chartered banks broad authority to set fees. Allowing 50 different states to dictate which line items on a receipt may carry interchange, the OCC argued, would fragment that authority and create a compliance tangle for banks operating across state lines.
Under the order, national banks and federal savings associations may continue to assess interchange on the full value of covered transactions in Illinois, including amounts tied to sales taxes and voluntary gratuities, as long as those fees otherwise comply with federal law. The OCC’s action does not alter Illinois’s tax code or tipping customs. It removes the state’s ability to shield those portions of a card transaction from processing charges when the card was issued by a federally regulated institution.
Four questions the rule leaves open
Nobody has published the actual dollar figures. Neither the OCC, the Federal Reserve, nor any major card network has released data showing how much interchange revenue banks currently earn specifically from the tax and tip portions of transactions. Without that baseline, the financial stakes for merchants and for bank fee income after June 30 are impossible to pin down, especially in industries where tips routinely add 15% to 25% to every check.
State-chartered banks are not covered. The preemption order applies only to federally chartered institutions. State-chartered banks in Illinois operate under a separate regulatory framework, and the OCC has no jurisdiction over them. Whether Illinois regulators will try to enforce the Interchange Fee Prohibition Act against state-chartered banks or non-bank payment processors after July 1 remains an open question. The answer could come through litigation, additional federal guidance, or both.
No other state has a comparable law on the books. The OCC’s published bulletins and Federal Register filings do not reference interchange-restriction proposals from any state besides Illinois. As of late May 2026, no other state has enacted or scheduled an interchange fee limitation on tax and tip amounts that appears in the public legislative record. Several states, including Oklahoma and Georgia, have seen related proposals introduced in recent legislative sessions, but none advanced to enactment. How other statehouses respond to the federal preemption is an open question.
The comment period is still running. Because the OCC issued both actions as interim final measures, they take effect before a full public comment period closes. The agency has invited feedback from banks, merchants, consumer groups, and state officials. The published documents do not specify what types of comments might prompt revisions or whether any changes adopted after the comment period would apply retroactively to transactions processed between June 30 and a potential future amendment.
What changes for merchants and cardholders after June 30
For merchants, the practical outcome is the status quo: interchange fees will continue to apply to the entire card ticket, including sales taxes and tips, whenever the card is issued by a national bank or federal savings association. The Illinois law that promised relief on those line items is effectively dead on arrival for federally chartered institutions, and the OCC’s nationwide rule raises the bar for any other state attempting the same approach.
Some restaurant and hospitality operators may respond by adjusting menu prices, rethinking the tip prompts on their point-of-sale terminals, or steering customers toward lower-cost payment methods like cash or ACH-based apps. Delgado said she is already considering a small “cash discount” sign near her register. “I would rather give a customer 2% off than hand that money to a bank for processing a tip my server earned,” she said.
The broader political fight over interchange fees has not gone away. The Credit Card Competition Act, a bipartisan federal bill that would require large card-issuing banks to offer merchants a choice of at least two unaffiliated processing networks for credit transactions, has been reintroduced in multiple sessions of Congress but has not reached a floor vote. That parallel effort targets interchange costs from a different angle, by promoting network competition rather than carving out specific line items.
For cardholders, nothing on the receipt changes. The cost of interchange is absorbed upstream, built into the prices merchants set and the margins they accept. Whether that cost eventually reaches diners and shoppers depends on pricing decisions thousands of individual businesses will make over the coming months. For servers like Jasmine Cole, who waits tables at a steakhouse in downtown Springfield, Illinois, the concern is more immediate. “Customers already think the tip goes straight to me,” Cole said. “Finding out a bank takes a cut of it before I ever see it does not sit right.”
How the OCC’s preemption reshapes the state-vs.-federal interchange fight
The OCC’s paired actions on interchange fees mark the most direct federal intervention in the state-level swipe fee debate to date. By locking in national bank authority over fee-setting before Illinois could enforce its law, the agency drew a line that will shape every future legislative attempt to regulate interchange at the state level. Whether that line holds may depend on the still-open comment period, on any legal challenges Illinois or merchant groups mount, and on whether Congress eventually addresses interchange costs through its own legislation. For now, the rule is set, the effective date is June 30, 2026, and the fees will keep flowing on every cent of every card transaction, tips and taxes included.
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.
