Federal Government Moves to Block Illinois Credit Card Swipe Fee Ban, Siding with Banks
The federal government is attempting to stop an Illinois law banning certain credit card fees, a move that appears to favor financial institutions fighting the state law in court.
The Office of the Comptroller of the Currency, an independent bureau of the U.S. Department of the Treasury, plans to issue an order preempting the Illinois Interchange Fee Prohibition Act, according to a federal posting.
The law, passed in 2024 and set to take effect this July, bans swipe fees on the tax and tip portions of customer bills with the goal of lowering what credit card companies can charge retailers.
Credit card companies and financial institutions charge retailers a fee when consumers use cards based on the total transaction, including goods, taxes and tips. The law bans fees on the tax or tip portions of customers bills. Financial institutions have argued implementation would be burdensome and costly, affecting not only their industry but potentially also small businesses and consumers.
A federal judge ruled key provisions of the first-in-the-nation law could go into effect in February. Banks and credit unions quickly appealed, while retailers who supported the legislation backed the decision.
"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," Rob Karr, president and CEO of the Illinois Retail Merchants Association, said in a statement. "While the office has failed to explain their reasoning or allow public review, it's clear the goal is an end-run around the legal process after a judge recently upheld the law."
Gov. JB Pritzker, who signed the measure into law, was more measured in his response.
"They're trying to figure out how to make the system work. We think that what was passed here works. They don't," Pritzker said. "The federal government is going to examine it. I hope they'll do what's best for the consumer in the end and also what's best for industry."
Amid the litigation, lawmakers delayed the ban's effective date last year, 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 year's state budget. Since then, financial institutions have argued in courtrooms, television ads and the media that it will cause chaos in transactions and the payment system.
Retailers say the credit card law will lower costs for businesses and consumers, and that arguments that the change will cause inconvenience are overblown.
"Banks, credit card companies and credit card processors are doing all they can to preserve an uncompetitive and unfair system, including spending millions of dollars on ads spreading falsehoods and threatening to cause chaos for consumers," Karr said in his statement.
State Rep. Margaret Croke, a Chicago Democrat who has sponsored a bill to repeal the law, took a cautious, wait-and-see approach on the impact of the federal government's notice.
Croke said she wants to see whether any directive from Republican President Donald Trump's administration would apply only to nationally chartered banks, or also to smaller community banks.
"With this federal government, I don't know if that's helpful if I don't know if that's hurtful," Croke said. She chairs the House's Financial Institutions and Licensing Committee.
Croke said her repeal legislation came in light of problems with the interchange fee law, which includes how the policy passed the legislature a few years ago without robust conversation. She wants to see that implementation pushed back for another year.
"I still feel like members of the legislature don't fully understand the implications of interchange. So that's just one part of that. And then now we're dealing with the repercussions of it, and it's starting to come up on us really quickly on July 1st," Croke said.
State Sen. Mark Walker, an Arlington Heights Democrat who sponsored repeal legislation, echoed Croke's cautious approach to the Trump administration's announcement.
At a press conference, Ben Jackson of the Illinois Bankers Association 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 wouldn't have passed, he said, calling for a repeal.
Gorner reported from Springfield.