If you run a restaurant, retail shop, or service business in Illinois, you've probably heard some version of this promise: a new state law will stop banks and card networks from charging you a swipe fee on the sales tax and tips that pass through your register. That law is real. It's also, two years after it passed, still not in effect anywhere — and the reason why is a case study in how fast a well-intentioned state law can collide with federal banking law.
Here's what actually happened, where things stand today, and what it means for your bottom line if you accept credit or debit cards.
What the Illinois Interchange Fee Prohibition Act Was Supposed to Do
Every time a customer pays with a credit or debit card, the bank that issued the card collects an "interchange fee" from your payment processor — typically somewhere between 1.5% and 3.5% of the transaction, depending on the card type and network. That fee comes out of your revenue before you ever see it.
The catch that frustrated merchants for years: interchange fees are charged on the entire transaction amount, including the sales tax you collect on the state's behalf and the tips your customers leave for your staff. You never keep that money — the tax goes to the Department of Revenue and the tip goes to your employee — but the bank still takes its cut of it.
Illinois's Interchange Fee Prohibition Act (IFPA), codified at 815 ILCS 151/, set out to fix that. Passed in 2024 as part of a larger budget implementation bill, it would have barred payment card networks, issuers, and processors from charging or collecting interchange fees on the portions of a transaction attributable to sales tax and gratuities. Illinois Retail Merchants Association leadership backed it loudly, arguing merchants and, indirectly, tipped workers were losing real money to a fee structure that made no sense.
On paper, it sounded like straightforward consumer and small-business protection. In practice, it ran into two problems: the payments industry said the technology to isolate tax and tip amounts in real time doesn't widely exist, and the banking industry said Illinois didn't have the authority to regulate it at all.
The Law Has Never Actually Taken Effect
The IFPA's effective date has moved three times:
- Originally: July 1, 2025
- First delay: pushed to July 1, 2026
- Second delay: Senate Bill 3645 pushed the interchange-fee provisions (Article 150) out again, to July 1, 2027
Each delay followed the same pattern — banking and payments trade groups warning that merchants weren't ready and neither were they, followed by the General Assembly kicking the date another year down the road. Illinois Retail Merchants Association CEO Rob Karr didn't mince words about the most recent delay, saying lawmakers had, for the second year running, "protect[ed] the bottom line of big banks, credit card companies and payment processors over ensuring meaningful financial relief for consumers, neighborhood retailers, restaurants and bars."
Underneath the delays, a bigger fight was happening in federal court.
The Federal Court Fight: Banks Sue, Then the OCC Steps In
Banking industry groups sued to block the IFPA in the U.S. District Court for the Northern District of Illinois, arguing the National Bank Act preempts state laws that restrict how national banks price their products — including interchange fees. Illinois initially won a round: in February 2026, the district court largely upheld the law on summary judgment.
That win didn't last. Two federal regulators changed the playing field in April 2026:
- The Office of the Comptroller of the Currency (OCC) issued an interim final rule and order concluding that federal law preempts the IFPA for national banks and federal savings associations, effective June 30, 2026.
- The National Credit Union Administration (NCUA) issued a parallel preemption action covering federally chartered credit unions.
Both agencies leaned on the National Bank Act's longstanding doctrine that state laws can't dictate how nationally chartered banks price non-interest fees. With a federal regulator now on the record saying the IFPA was preempted, the Seventh Circuit vacated the district court's February ruling and sent the case back down for reconsideration.
On June 1, 2026, Chief Judge Virginia M. Kendall reversed course and entered a permanent injunction barring Illinois from enforcing the IFPA's interchange fee restriction against national banks, federal savings associations, out-of-state state-chartered banks covered by the Riegle-Neal Act, and the payment card networks (Visa, Mastercard, and the like) that route those cards.
That covers the overwhelming majority of cards Illinois consumers actually carry. What's left standing? Illinois-chartered state banks and credit unions, which aren't protected by the same federal preemption doctrine and technically remain subject to the law — a much smaller slice of the market, and one the case is still headed back to the Seventh Circuit to sort out.
So What Does This Mean for Your Business Right Now?
In plain terms: nothing changes for you today, and probably not for a while.
- No fee relief is coming in the near term. Between the 2027 effective-date delay and the permanent injunction covering national banks and the major card networks, there's currently no functioning mechanism forcing interchange fee reductions on tax and tip amounts. Budget your processing costs as if the law doesn't exist, because for practical purposes it doesn't yet.
- Don't build workflows around a rebate you don't have. Some early coverage of the IFPA described a two-tier compliance system — a real-time exemption during authorization, or a retroactive rebate — that processors would eventually need to support. None of that is live. If a vendor pitches you software promising to "capture your Illinois interchange rebate," verify with your processor directly before paying for it.
- Watch the Seventh Circuit, not the news cycle. The case is back on appeal, and the fate of the interchange fee limitation for state-chartered banks is still an open question. A future ruling — or another legislative delay — could shift the picture again before 2027.
- This fight isn't staying in Illinois. At least a dozen states have introduced similar bills, including Rhode Island (S.2324), Texas (SB 2026), Iowa (SB 5070), and Delaware (HB 315, tips only). Colorado got the furthest along with SB26-134, modeled directly on the IFPA — Governor Jared Polis vetoed it in June 2026, citing exactly the federal preemption problems Illinois ran into. If you operate in multiple states, expect this to keep coming up in state legislatures for the next several years, with federal preemption as the recurring obstacle.
The Real Lesson: Know What You're Actually Paying in Fees
Whether or not this law ever bites, it highlights something every business that accepts cards should already be tracking: how much of your revenue interchange and processing fees are quietly eating, and where.
A few practical habits worth adopting regardless of what happens in Springfield or the Seventh Circuit:
- Separate your processing fees from your revenue in your chart of accounts. Don't net card fees against sales — record gross sales, then book the fee as its own expense line. That's the only way to see the true percentage you're losing to interchange over time.
- Reconcile your processor statement monthly, not just your bank deposit. Processor statements break down interchange, assessment, and markup fees separately. Most merchants only ever look at the net deposit, which hides exactly the kind of cost this law was trying to address.
- Track sales tax collected as a liability, not revenue, from the moment it hits your register. It's money you're holding for the state, and clean books make it obvious how much of every card swipe is actually "yours."
Keep Your Books Ready for Whatever Comes Next
Card-fee rules can change with one court ruling or one legislative session — as this saga shows, sometimes more than once. What doesn't change is the value of knowing exactly what you're paying and what you're collecting on behalf of someone else. Beancount.io offers plain-text accounting that gives you complete transparency into every fee, every tax liability, and every dollar that moves through your books — no black boxes, no vendor lock-in. Get started for free and keep your finances audit-ready no matter how the interchange fee fight plays out.