Federal Government Moves to Block Illinois Credit Card Swipe Fee Ban
Federal Preemption Threatens State Law
The federal government has signaled it will block an Illinois law banning credit card swipe fees on tax and tip portions of bills, marking a significant legal battle between state and federal authorities.
The Office of the Comptroller of the Currency, an independent bureau within the U.S. Department of the Treasury, plans to issue an order preempting the Illinois Interchange Fee Prohibition Act. The full text of the order was not publicly disclosed.
What the Law Does
The state law passed in 2024 and set to take effect in July 2026 bans certain swipe fees, also known as interchange fees, on the tax and tip portions of customer bills. The goal was to lower the amount credit card companies can charge retailers.
Credit card companies and financial institutions charge retailers a fee when consumers use cards. These fees are based on the total transaction amount, including goods, taxes, and tips. The law prohibits fees on the tax or tip portions of customer bills.
Banks Push Back
Financial institutions have argued that implementing the ban would be burdensome and costly, affecting not just the banking industry but potentially small businesses and consumers as well.
A federal judge ruled in February that key provisions of the law could take effect. Banks and credit unions immediately appealed that decision, while retailers who supported the legislation backed the ruling.
Rob Karr, president and CEO of the Illinois Retail Merchants Association, criticized the federal move.
This rushed announcement by the federal government to usurp Illinois law is unprecedented, prioritizing the bottom line of banks and credit card companies over meaningful relief for businesses and consumers.
Karr added that the federal office failed to explain its reasoning or allow public review. He stated the goal appears to be an end-run around the legal process after a judge recently upheld the law.
Retailers Back the Ban
Retailers say the credit card law will lower costs for businesses and consumers, calling arguments about potential inconvenience overblown.
Banks, credit card companies, and credit card processors have fought the state law in court for more than a year. They have spent millions on advertisements claiming the change would cause chaos for consumers.
Governor Pritzker Responds
Governor JB Pritzker, who signed the measure into law, took a measured response to the federal development.
They are trying to figure out how to make the system work. We think that what was passed here works. They do not. The federal government is going to examine it. I hope they will do what is best for the consumer in the end and also what is best for industry.
Legislative Background
Amid ongoing litigation, lawmakers last year delayed the ban effective date, moving it from last July to July 2026.
The Democratic-led General Assembly passed the swipe fee ban at the behest of retailers who opposed a separate tax hike on their businesses. Both measures were included in that years state budget.
Since passing the law, financial institutions have fought it in courtrooms, television ads, and media outlets. They have argued the change will cause chaos in transactions and the payment system.
State Rep. Margaret Croke Weighs In
State Rep. Margaret Croke, a Chicago Democrat who has sponsored a bill to repeal the law, took a cautious approach on the federal development.
Croke won the Democratic nomination last month in the race for Illinois comptroller, an office responsible for paying the states bills and monitoring fiscal compliance.
She said she wants to see whether any directive from President Donald Trumps administration would apply only to nationally chartered banks, or also to smaller community banks.
With this federal government, I do not know if that is helpful if that is hurtful.
Croke chairs the House Financial Institutions and Licensing Committee. She said her repeal legislation came in light of problems with the interchange fee law, including how the policy passed the legislature a few years ago without robust conversation.
I still feel like members of the legislature do not fully understand the implications of interchange. So that is just one part of that. And then now we are dealing with the repercussions of it, and it is starting to come up on us really quickly on July 1st.
State Sen. Mark Walker Also Calls for Repeal
State Sen. Mark Walker, an Arlington Heights Democrat who sponsored repeal legislation, echoed Crokes cautious approach while explaining how the current state law is not workable.
I would have to look at what the feds actually did.
Banks Considering Removing Credit Card Products
Ben Jackson of the Illinois Bankers Association held a press conference earlier in the week. He said given the law, some banks are considering removing credit card offerings or other products and services that consumers and businesses in Illinois enjoy.
If the bill had been vetted two years ago, it would not have passed.
Jackson called for repeal of the law.
Timeline
The Democratic General Assembly passed the Interchange Fee Prohibition Act in 2024. The law was originally set to take effect in July 2025 but lawmakers delayed it to July 2026 amid the ongoing legal challenges.
The federal Office of the Comptroller of the Currency announced its intent to preempt the state law this week, though the full order text was not made public.
Sources
- Chicago Tribune: Feds move to block controversial Illinois credit card swipe-fee ban, siding with banks in ongoing legal fight https://www.chicagotribune.com/2026/04/15/federal-government-illinois-interchange/
- Chicago Tribune: Feds Move to Block Controversial Illinois Credit Card Swipe Fee Ban https://www.cpapracticeadvisor.com/2026/04/16/feds-move-to-block-controversial-illinois-credit-card-swipe-fee-ban/181761/
- Decatur Radio: ILLINOIS SWIPE FEE BAN FACES FEDERAL PREEMPTION https://www.decaturradio.com/2026/04/16/illinois-swipe-fee-ban-faces-federal-preemption/
- New York Times: Illinois Comptroller Primary 2026: Live Election Results https://www.nytimes.com/interactive/2026/us/elections/results-illinois-comptroller-primary.html