OCC Preempts Illinois Interchange Fee Law: What National Banks Need to Know Before July 1, 2026

TL;DR

• The OCC issued two interim final actions on April 24, 2026 preempting the Illinois Interchange Fee Prohibition Act (IFPA); the preemption order took effect June 30, 2026
• On June 1, 2026, a federal court permanently enjoined the IFPA for national banks, federal savings associations, out-of-state state-chartered banks and card networks. Illinois-chartered banks and credit unions are still exposed
• Illinois then pushed the law’s effective date from July 1, 2026 to July 1, 2027 (Senate Bill 3645, signed June 2026)
• Compliance teams: document all three developments in your regulatory change log, confirm operations teams aren’t building unnecessary IFPA system changes, and watch for a further appeal

Illinois tried to rewrite the economics of payment card transactions. The OCC said no, and then a federal judge agreed.

On April 24, 2026, the Office of the Comptroller of the Currency issued two interim final actions preempting the Illinois Interchange Fee Prohibition Act (IFPA). At the time, the state law was scheduled to take effect July 1, 2026. It would ban national banks and card networks from charging interchange fees on the tax and gratuity portions of payment transactions and would restrict the use of payment card data.

The OCC’s message was direct: federal law governs what national banks can charge and how they can use payment data. A patchwork of state-by-state interchange rules creates the kind of “complex, potentially unworkable, and destabilizing standard” the National Bank Act was designed to prevent.

July 1, 2026 has come and gone, and the IFPA did not take effect. A federal court permanently enjoined it for most of the payments chain on June 1, and the Illinois General Assembly delayed it another year. But the law is not dead. Illinois-chartered banks and credit unions remain subject to it, the merchant groups have said they will keep litigating, and a further appeal is likely. This still isn’t a story you file and forget.

What the Illinois IFPA Would Do

The Illinois Interchange Fee Prohibition Act was signed into law in June 2024. Its effective date was first delayed to July 1, 2026, and then to July 1, 2027. It has two main prongs:

Interchange fee restrictions: Card networks and financial institutions would be prohibited from charging or receiving interchange fees on the tax and gratuity portions of payment card transactions. Currently, interchange fees apply to the full transaction amount. The IFPA would require networks to surgically separate the tax/tip amounts from the base transaction and exempt them from interchange.

Data use restrictions: The IFPA would also restrict how payment card transaction data could be used after the transaction was processed, limiting data sharing and secondary use in ways that conflict with existing federal frameworks.

The operational implications are significant. Payment card systems process billions of transactions without distinguishing taxed amounts in real time. Retrofitting those systems to carve out interchange on tax and tip portions would require substantial infrastructure changes at card networks, issuing banks, and acquirers.

The American Bankers Association called it a move that would “wreck havoc” on payment systems. The Electronic Transactions Association called the OCC’s preemption action a critical step to preserve payment system stability.

The OCC’s Two-Part Response

The OCC issued two parallel actions:

1. Interim Final Rule: “National Bank Non-Interest Charges and Fees”

This rule clarifies that national banks possess longstanding authority under the National Bank Act to charge and receive interchange fees, regardless of whether those fees are set by the bank or a third party such as a card network. The rule reaffirms the federal legal basis for interchange fee practices that have existed for decades.

The practical effect: this rule makes explicit what the OCC views as already settled. National banks’ interchange authority derives from federal law and cannot be curtailed by state action.

2. Interim Final Order: Preemption of the Illinois IFPA

The second action is the preemption determination itself. The OCC concluded that federal law preempts the Illinois Interchange Fee Prohibition Act in its application to national banks and federal savings associations. The order was published in the Federal Register on April 29, 2026 (91 FR 23150), took comments through May 29, 2026, and became effective June 30, 2026, one day before the IFPA’s original start date.

The order’s core holding: national banks and federal savings associations are neither subject to nor required to comply with the Illinois IFPA.

The OCC framed the IFPA as creating an unworkable standard that conflicts with federal bank powers, which is precisely the situation the National Bank Act’s preemption framework was designed to address.

How the Litigation Played Out

The OCC’s preemption actions didn’t exist in a vacuum. The IFPA has been in federal court (Illinois Bankers Association v. Raoul, N.D. Ill.) since before it was due to take effect, and the sequence matters:

February 2026: Judge Virginia Kendall issued a split ruling. She upheld the IFPA’s core interchange fee restriction but enjoined the data-use limits.

March 2026: The OCC and a group of former Comptrollers urged the Seventh Circuit to overturn the February ruling on the interchange fee restriction. That signaled the OCC’s position weeks before the interim final actions were formally issued.

April 24, 2026: The OCC formalized its position through the interim final rule and interim final order.

May 8, 2026: The Seventh Circuit, which had expedited the appeal, cancelled oral argument and sent the case back to the district court to consider the OCC’s new actions.

June 1, 2026: On remand, Judge Kendall reversed her earlier conclusion. She held that federal law preempts the interchange fee prohibition and the data-usage limits for national banks, federal savings associations, out-of-state state-chartered banks protected by federal law, and payment card networks, and permanently enjoined enforcement against them.

June 2026: Illinois enacted Senate Bill 3645, which pushed the IFPA’s effective date to July 1, 2027.

The district court did not resolve any challenge to the OCC order itself under the Administrative Procedure Act, because the OCC wasn’t a party and no such claim had been pleaded. The plaintiffs said another appeal to the Seventh Circuit was “highly likely” because credit unions and Illinois-chartered banks remain subject to the law, and the Illinois Retail Merchants Association said it would keep fighting.

The practical risk for compliance officers: the OCC order and the injunction now point the same way for national banks. A future appellate ruling could still change the picture, so monitoring both tracks is essential.

Who Is and Isn’t Protected Today

The OCC order and the June 2026 injunction don’t cover the same set of institutions:

Illinois-chartered banks and credit unions are the ones who need to pay close attention to any further appeal, to their own legal counsel’s view, and to the July 1, 2027 date. The protection covers most of the banking system, but it’s not universal.

The Broader Pattern: Federal vs. State in Financial Services

This isn’t the first time federal banking regulators have moved to preempt state laws that create operational complexity for nationally chartered institutions. It won’t be the last.

The GLBA preemption debate, covering whether Congress would preempt state privacy laws for banks, follows the same fundamental tension: states legislate to fill perceived gaps in federal consumer protection, and federal regulators respond that uniform national standards serve the banking system better than a patchwork of state requirements.

The OCC has also been active on other fronts. The updated model risk management guidance issued in April 2026 signals a regulator that’s actively updating its supervisory frameworks. The OCC’s reputational risk rule changes reflect a broader rethink of what banks should and shouldn’t be penalized for under examination.

The IFPA preemption fits this pattern: the OCC is asserting federal authority in areas where state action has created operational uncertainty for nationally chartered institutions.

What Compliance Teams Should Do Now

1. Log this in your regulatory change management process. Even though the practical outcome for national banks is “no new compliance obligation,” regulatory changes, including preemptions, belong in your regulatory inventory. Document: the OCC’s interim final rule and interim final order (effective June 30, 2026), the June 1, 2026 permanent injunction, the new July 1, 2027 effective date, and the open item (a possible further appeal).

2. Confirm operations teams aren’t making IFPA-driven system changes. Some banks were preparing for IFPA compliance before the OCC action. Operations and technology teams that started building tax/tip segregation into payment processing should know this is on hold and may not be necessary at all for nationally chartered institutions.

3. Close out the comment period item. Comments on the interim final order closed May 29, 2026. If your log still shows it open, close it. Then watch for the OCC to finalize the interim rule and order.

4. Track the appeal. The June 2026 ruling protects most of the payments chain, but the plaintiffs and the merchant groups have both signaled they will keep litigating. An appellate ruling against preemption would reopen the question, so your legal and compliance teams should be monitoring the Seventh Circuit docket.

5. Consider Illinois-chartered affiliates separately. If your holding company includes an Illinois-chartered bank or a credit union affiliate, neither the OCC order nor the injunction protects that entity. It needs its own plan for July 1, 2027.

6. Brief senior leadership. The IFPA was industry news for two years. Executives who were tracking it need a short update: for nationally chartered banks, the OCC order and a federal court both say you’re out. But the story isn’t fully closed yet.

For tracking regulatory change items like these (new guidance, preemption determinations, open comment periods, litigation monitoring), an Issues Management Tracker gives compliance teams a central log for flagging, assigning owners, setting follow-up dates, and closing items when resolved.

Where July 1, 2027 Leaves Everyone

The original July 1, 2026 date passed without the IFPA taking effect. The new date still matters for:

• Illinois-chartered banks and credit unions: No OCC order and no injunction. These institutions need legal counsel’s view of their obligations before July 1, 2027, and a plan that assumes the law could take effect.
• Card networks and out-of-state banks: Protected by the June 2026 injunction, which rests on the OCC’s actions. If an appeal or a challenge to the OCC order succeeds, that protection could narrow.
• National banks: Protected by both the OCC order and the injunction. The job now is monitoring, not building.

The OCC moved decisively to protect national banks from the IFPA, and the court followed. Whether that holds through the next appeal is the open question compliance officers need to keep tracking into 2027.

Sources:

• OCC Bulletin 2026-17: Preemption of Illinois Interchange Fee Prohibition Act: Interim Final Order — OCC.gov
• OCC News Release 2026-32: OCC Issues Two Interim Final Actions — OCC.gov
• Order Preempting the Illinois Interchange Fee Prohibition Act, 91 FR 23150 — Federal Register
• Court Rules Federal Law Preempts Illinois Interchange Law — ABA Banking Journal
• Pritzker Signs Bills on Environmental Standards, In-State Tuition (SB 3645) — Capitol News Illinois
• OCC Moves to Block Illinois Ban on Swipe Fees on Taxes, Tips — American Banker
• ABA: Illinois Interchange Law Will ‘Wreck Havoc’ on Payment Systems — ABA Banking Journal
• Federal Court Partially Upholds Illinois Interchange Fee Law — ABA Banking Journal