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• Key insight: The Office of the Comptroller of the Currency is moving to preempt Illinois’ tax-and-tip swipe fee ban before it takes effect July 1, 2026.
• Supporting data: The draft interim final rule was sent to the Office of Management and Budget for approval and would take effect immediately once OMB has greenlighted the rule.
• Forward look: The rule could be issued within weeks and could potentially add a new wrinkle into ongoing litigation over the state law.

The Office of the Comptroller of the Currency this week sent a draft rule to the Office of Management and Budget that would preempt an Illinois state law banning the collection of interchange fees on taxes and tips.
A notice announcing the rule‘s consideration appeared on OMB’s website, though the contents of the draft rule were not disclosed. Because it is an interim final rule, the rule would immediately go into effect at the outset of the public comment period, but could be updated to incorporate feedback. 

Jaret Seiberg, policy analyst at TD Cowen said the rule’s consideration could take time. 

“OMB reviews can vary significantly with some taking days and others months,” Seiberg wrote. “In this case, we expect an expedited review with the agency able to issue the interim final rule within a few weeks.”

Banks charge interchange fees — also known as swipe fees — every time a credit card is used, and those fees are justified as necessary to pay for fraud prevention, the cost of processing the transaction and offsetting the costs of credit card rewards. The fees are set by the card networks like Visa or Mastercard and often are around 2-3% of a transaction. Merchants paid nearly $200 billion in such fees last year.

Critics of interchange fees, such as Eric Cohen, founder & CEO of Merchant Advocate, say payment systems are opaque, making it impossible to know what interchange fees they’re charged on any given transaction. He argued in a recent piece for American Banker that interchange fees no longer fit the system they were originally designed for.

The Illinois Interchange Fee Prohibition Act, signed into law by Governor J.B. Pritzker in 2024, would bar banks and their affiliated card networks from levying such fees on the state sales tax and gratuity portions of transactions, with state officials saying merchants should not be charged for processing non-revenue. 

Shortly after the law’s passage in 2024, the American Bankers Association, America’s Credit Unions, Illinois Bankers Association and Illinois Credit Union League sued Illinois Attorney General Kwame Raoul to block the measure, saying the rule is technically unworkable, acts as a price control and could cost issuers millions. The state has subsequently moved to delay the law’s implementation for a year. A federal judge ruled in February to uphold the law; plaintiffs have appealed the district court’s ruling, and a ruling on that appeal is expected by mid-June. 

The OCC has also filed amicus briefs backing the plaintiffs’ case, arguing the law should be blocked because it conflicts with federal banking law and would significantly interfere with national banks’ ability to earn money from card transactions. Ten former OCC officials also filed a brief supporting the plaintiffs.

The Illinois Retail Merchants Association responded to the OCC’s notice of the draft interim final rule with concern, saying the move prioritizes banks’ bottom lines over bringing down costs from merchants and consumers.

“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. 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,” said Rob Karr, president and CEO of the Illinois Retail Merchants Association. “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. It’s time to end their reign over our pocketbooks.”

Seiberg says he expects more litigation in the future, but that preemption cases often go the agency’s way. The entrance of the OCC rulemaking could lead the appeals court currently reviewing banks’ challenge to the Illinois law to send the case back to the lower court to reconsider the impact of the rule on the overall case. 

“We expect Illinois will challenge the OCC’s preemption order in court,” Seiberg wrote in a research note. “If the Illinois law survives legal challenge, then it is only a matter of time before most other states adopt similar policies. It also likely encourages states to seek other limits on interchange fees using the same legal reasoning that these fees are set by networks rather than banks.”

CHICAGO (WGN) — Charging your credit card at a restaurant or grocery store could change this summer if one swipe won’t cover the tax or tip.

It’s the first law of its kind in the country. While some feel it will save businesses money, banks aren’t happy about the change. 

“In the restaurant business, we operate on very thin margins. Every decision matters. Even small disruptions can have a huge impact on our bottom line,” said Tremaine Branch, a Peoria restaurant owner concerned about the Interchange Fee Prohibition Act, which becomes law in Illinois on July 1.

As it stands now, when you swipe your credit or debit card for a purchase, the retailer’s bank pays an “interchange fee” to the consumer’s bank, typically around 2-3%. The Interchange Fee Prohibition Act would eliminate those fees on the tip and tax portions of the transaction. 

The legislation was proposed to address concerns that businesses incur costs on money that isn’t part of their revenue for goods and services. After the bill passed, a group of financial institutions filed a lawsuit in 2024, and in March, a federal judge upheld the law. 

Sam Toia, with the Illinois Restaurant Association, believes the legislation could benefit business owners. 

“I have every faith banks can flip the software, we’re in 2026, to figure this out,” he said. “We’re out here fighting for our small independent restaurants throughout the state of Illinois that will save no swipe fees to our independent restaurants on taxes and tips. That will save them quite a bit of money.”

Businesses that don’t comply would face a $1,000-per-transaction penalty, however.

“There’s no workable technology in place right now that can actually do what this law requires,” said Ben Jackson, an executive vice president of government relations at Illinois Bankers Association. “It’s completely unknown whether Illinois businesses with that July 1 implementation date could put this law into practice.”

Businesses should check with their payment processor to update software and learn how to adjust their systems before July 1.