Federal government intervenes to block Illinois' landmark credit card swipe fee as lawmakers weigh options

The federal government has officially moved to block a controversial Illinois law banning certain credit card fees, a decision that favors financial institutions but could leave state-chartered banks in a lurch as lawmakers weigh next steps.

The Office of the Comptroller of the Currency, an independent bureau of the U.S. Department of the Treasury, late Friday issued an order preempting Illinois' first-in-the-nation law on credit card interchange fees. Banking associations celebrated the move while retailers decried it. The announcement came after the bureau signaled its plans to issue the order earlier this month.

The order is the latest development in a nearly two-year fight between banks and retailers over the Illinois law, a battle that has played out in courts, in Springfield, on television airwaves and now in Washington.

But because the federal order focuses on national banks, financial institutions and their allies - including the Electronic Payments Coalition, a national group representing some major financial institutions - say the state General Assembly must still act to prevent the state law from taking effect. Otherwise, state-chartered banks and credit unions, which are often smaller institutions, could still face implementation costs, even as national banks win an exemption.

"We can't have a system of law focused on banking and credit cards that applies to one set of banks and not others," said state Sen. Mark Walker, an Arlington Heights Democrat who sponsored legislation to repeal the law.

"Some change will happen, I think, before July 1," he added, referring to the law's expected effective date. "I don't know what. That's the reality."

Walker said Tuesday that advocates on both sides were expected to hold discussions in Springfield throughout the day. One option on the menu is again delaying implementation, he said, as lawmakers did last year amid litigation.

Also on Tuesday, Gov. JB Pritzker said he wasn't sure whether the state would have to pass such a delay, but he acknowledged that federal law can override state law.

Passed in 2024, the state law bans so-called swipe fees, also known as interchange fees, on the tax and tip portions of customers' bills. The goal is to reduce the fees that credit card companies can charge retailers. Those credit card companies and financial institutions currently charge retailers based on total transaction amounts, including goods, taxes and tips. The law bans fees on the tax or tip portions of customers' bills. Financial institutions have argued that complying with the law would be burdensome and costly, affecting not only their industry but also small businesses and consumers.

Processing fees average just over 2% per transaction, according to the National Retail Federation.

In February, a federal judge ruled that key provisions of the law could go into effect, a decision backed by retailers who supported the legislation. Banks and credit unions quickly appealed, and oral arguments are set for May 13. Co-plaintiffs in the case - the Illinois Bankers Association, Illinois Credit Union League, American Bankers Association and America's Credit Unions - welcomed the federal preemptive order.

Rob Karr, president and CEO of the Illinois Retail Merchants Association and a key supporter of the swipe fee ban, pushed back sharply as an attempt from the Trump administration to block the Illinois law.

"We should all be disturbed by their efforts to evade the law, undermine the legal system and threaten the very consumers they purport to serve. We are confident the courts will make the final decision in this matter - not an agency operating at the behest of big banks and credit card companies," Karr said.

The Democratic-led General Assembly passed the swipe-fee ban as part of a deal with retailers who opposed a separate tax hike on their businesses. Both measures were included in the state budget reached in 2024. Since then, financial institutions have argued in courtrooms, television ads and in the media that the law will cause chaos in transactions and the payment system.

At a news conference prior to the federal government's rollout of the rule, Ben Jackson of the Illinois Bankers Association said some banks "are considering removing credit card offerings or other products and services that consumers and businesses in Illinois enjoy."

Retailers counter that the law will lower costs for businesses and consumers, and that warnings of widespread disruption and inconvenience are overblown.

State Rep. Margaret Croke, a Chicago Democrat who has sponsored a bill to repeal the law, said she doesn't want to create an uneven playing field that could disproportionately penalize state-chartered banks and credit unions.

Croke, the Democratic nominee for Illinois comptroller, said the law at a "minimum" should be delayed and that the federal government's intervention strengthens the case for outright repeal.

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The Chicago Tribune's Jack O'Connor contributed from Springfield.

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This story was originally published April 28, 2026 at 4:41 PM.