OCC Says Illinois Can’t Limit Credit Card Swipe Fees

The Office of the Comptroller of the Currency (OCC) has issued an interim final rule saying Illinois cannot enforce its new law limiting certain credit‑card “swipe fees” on national banks (and other federally chartered institutions), effectively preempting that part of the state statute even though a federal judge had previously upheld it.

What Illinois tried to do

• In 2024, Illinois passed the Interchange Fee Prohibition Act as part of its budget.

• The law bans financial institutions from charging interchange (“swipe”) fees on the tax and tip portions of credit and debit card transactions, while still allowing fees on the base purchase amount.

• Interchange fees are typically around 1–2% or more of the transaction amount and are paid by merchants to banks, credit unions and card networks like Visa and Mastercard.

• Retailers pushed for the law; banking and card‑network groups sued, arguing federal law preempts state regulation of these fees.

What the federal agency just did

• The OCC, the primary federal regulator of national banks, issued an interim final rule and interpretive filings stating that interchange/swipe fees are among the “fees” that states may not regulate when charged by national banks and related card networks.

• One filing specifically targets and preempts Illinois’ Interchange Fee Prohibition Act for federally chartered institutions.

• The OCC’s position is that federal banking law (notably the National Bank Act) gives national banks broad authority to set and charge fees without state caps or carve‑outs like Illinois’ tax‑and‑tip rule.

• The rule is “interim final,” meaning it is scheduled to take effect June 30, 2026, but is immediately effective pending comments; a 30‑day public comment period is open, and Congress or the courts could still overturn it.

How this conflicts with the earlier court ruling

• In February 2026, U.S. District Judge Virginia Kendall largely upheld the Illinois law against a preemption challenge.

• She reasoned that while the National Bank Act preempts state limits on fees that banks themselves charge, the swipe‑fee amounts at issue are set by third‑party card networks, so Illinois could regulate them for taxes and tips.

• Banking trade groups appealed, and that appellate case is still pending, with a key hearing set for May 13.

• The OCC’s new rule creates a second front: even if the appellate court ultimately agrees with Illinois, national banks can now point to the OCC regulation as an independent basis for federal preemption.

Practical impact for merchants and consumers

• The Illinois law was set to take effect July 1, 2026, and would have made Illinois the first state to bar swipe fees on the tax and tip portion of card transactions.

• The OCC move effectively blocks that change for national banks and federal savings associations, meaning most large card‑issuing banks would keep charging swipe fees on the full amount, including tax and tip.

• Some state‑chartered banks or credit unions might still be subject to the Illinois law if courts ultimately uphold it and if they are not covered by similar federal preemption principles, but the OCC rule significantly narrows the law’s reach.

• For now, businesses in Illinois should assume that swipe‑fee costs on tax and tip will continue for most card transactions, unless and until courts or Congress change course.

What happens next

• Retailers and consumer groups are expected to challenge the OCC’s rule in court, arguing the agency overstepped and is protecting bank price‑setting at the expense of merchants.

• The pending appeal of Judge Kendall’s decision will proceed, and the outcome will interact with how much deference courts give to the OCC’s new interpretation.

• Illinois lawmakers are facing pressure either to defend the law vigorously, amend it, or consider broader swipe‑fee reforms in light of the OCC’s action.