As of mid-September 2026, the Illinois Interchange Fee Prohibition Act has a third effective date, is permanently enjoined for most of the institutions it was written to regulate, and remains on the books for the rest. If you acquire for restaurants, retailers or anyone else who collects Illinois sales tax, the question is no longer whether you have to build for it by July. It is which of your sponsor banks, issuers and processing partners are still inside a law that now applies to some card transactions in the state and not others.
Everything below is drawn from the statute as amended, the 1 June 2026 district court opinion, the OCC and NCUA Federal Register documents, and the Illinois General Assembly's record for the delay bill.
What the Law Actually Requires
The Act, 815 ILCS 151/150-1 and following, was enacted in June 2024 as Article 150 of a much larger public act, Public Act 103-592, which the OCC describes as an effort to balance the state budget. It has two operative provisions, and they have had very different fates.
The first is the interchange fee limitation. An issuer, a payment card network, an acquirer bank or a processor may not receive or charge a merchant any interchange fee on the tax or gratuity amount of a card transaction, provided the merchant informs the acquirer bank or its designee of that amount as part of the authorization or settlement process. The burden is on the merchant to transmit the data. A merchant that does not has a second route: within 180 days it may submit tax documentation, which the statute defines to include invoices, receipts, ledgers and filed tax returns, to the acquirer bank or its designee, and within 30 days of that the issuer must credit the interchange charged on the tax or gratuity amount.
The parties may not raise the rate on the non-tax portion to circumvent the exemption. A violation by any party that has received the tax or gratuity data carries a civil penalty of USD 1,000 per electronic payment transaction, on top of the refund.
Three definitions shape who this reaches. A merchant is a person that collects and remits a tax, so the law is framed around tax-collecting sellers rather than every card acceptor. Tax means a state or local use and occupation tax or excise tax. Gratuity means a voluntary contribution from a customer to an employee for services rendered, which on its face is the tip line rather than a mandatory service charge.
The second provision is the data usage limitation. Any entity other than the merchant involved in facilitating or processing the transaction may not distribute, exchange, transfer, disseminate or use the transaction data except to facilitate or process the transaction or as required by law, on pain of the Illinois Consumer Fraud and Deceptive Business Practices Act. For a processor or CRM vendor this was always the more consequential provision, and it is the one that fell first.
How It Got to July 2027
The original effective date was 1 July 2025. Bank and credit union trade groups had sued the Illinois Attorney General in the Northern District of Illinois by August 2024, in Illinois Bankers Association v. Raoul, No. 24 C 7307. The sequence since, as the court's own June 2026 opinion recites it:
- Late 2024 and early 2025: preliminary injunctions for national banks, federal savings associations and out-of-state state banks, but not federal credit unions, card networks or debit transactions. The legislature moved the date to 1 July 2026.
- 10 February 2026: summary judgment. The data usage limitation was held preempted for a list of federally regulated entities; the interchange fee limitation was not enjoined for anyone. Both sides appealed.
- 24 April 2026: the OCC issued an interim final rule amending 12 CFR 7.4002 on national banks' power to charge non-interest fees, including interchange set by third parties, and an interim final order concluding that federal law preempts the IFPA as to national banks and federal savings associations. Both were published 29 April; the order took effect 30 June 2026.
- 8 May 2026: the Seventh Circuit vacated the February judgment and remanded for the district court to consider the OCC's actions first.
- 1 June 2026: Chief Judge Virginia Kendall issued the opinion that now governs. In the early hours of the same day the General Assembly passed SB 3645.
- 3 June 2026: Colorado's governor vetoed SB26-134, a tax-only version of the same idea, citing the OCC and NCUA preemption positions and the Illinois injunction.
- 9 June 2026: the NCUA published a parallel interim final rule for federal credit unions, also effective 30 June 2026.
- 26 June 2026: the governor signed SB 3645 as Public Act 104-0532. The IFPA's effective date is now 1 July 2027.
The June opinion was written for an expedited return to the Seventh Circuit, and both parties had already appealed the February ruling. We have not found a further appellate decision as of this writing.
Who Is Enjoined, and Who Is Not
The 1 June order permanently enjoins Illinois from enforcing the interchange fee limitation against four groups: national banks; banks chartered by states other than Illinois that are subject to the Riegle-Neal Act; federal savings associations; and payment card networks. The networks are in not because the court accepted an independent preemption argument for them, which it had rejected earlier, but because relief for the banks could not be made effective without reaching the entity that sets and collects the fee.
It is equally explicit about who is left out. The earlier refusal to extend fee-limitation preemption to federal credit unions stands, as does the refusal for savings associations, savings banks and credit unions chartered by other states. A footnote records that the statute's applicability to Illinois-chartered entities was not before the court at all; nothing in the order protects them.
The data usage limitation is in a different place. The February analysis, adopted in full in June, holds it preempted or invalid as to national banks, out-of-state state banks, federal savings associations, federal credit unions and, in the court's words, other entities participating in an electronic payment transaction, such as payment card networks and processors, to the extent they are carrying out the functions that facilitate the powers of any of those institutions. Out-of-state state savings institutions and credit unions, and again the Illinois-chartered institutions, are outside it.
The judge's own summary: the outcome leaves a complicated legacy, with both provisions enjoined as to most, but not all, entities, and compliance may still prove overwhelmingly arduous for some remaining institutions.
Where a Processor or ISO Sits
The statute names processors directly in the fee limitation, and the acquirer bank or its designee as the party the merchant informs. The fee-limitation injunction does not name processors; the data-use injunction covers them only derivatively, while performing functions for a protected institution.
That leaves a non-bank acquirer, ISO or payment facilitator in a position that depends on whose powers it is exercising. If your sponsor is a national bank or an out-of-state state bank, the fee your merchants pay is set by an enjoined network, and the OCC's order reasons at length that a national bank's use of third parties, networks included, does not strip its activity of federal protection. If your sponsor is an Illinois-chartered bank, or the issuer on a transaction is a federal credit union, the statute is still live for that transaction on the current state of the law; the NCUA's June rule asserting federal credit unions' fee powers postdates the court's opinion and has not been ruled on. None of this has been tested with a processor as defendant, and the answer is not clean. The court said so.
What Compliance Would Have Cost
The OCC's order carries the only public sizing of the burden, built largely on the plaintiffs' declarations. It puts one-time system upgrades to transmit tax and gratuity data at more than USD 232 million across OCC-supervised banks, USD 72 million of it at acquirers, and manual processing of merchant tax documentation at USD 145 million a year for the first several years, USD 121 million of it at acquirers. It notes that most acquirer banks would see the upgrade cost absorbed, at least initially, by their core payment service providers, which is a polite way of saying the processors would build it. These are the OCC's figures in support of its own action; treat them as an order of magnitude, not an audit.
What to Do Now
Do not build for 1 July 2027 yet
The date has moved twice, the core provision is enjoined for the institutions that handle most of the volume, the case is expected back at the Seventh Circuit, and the legislature has already debated full repeal. A tax-and-tip interchange pipeline built now is more likely to be thrown away than used. Put the date on the regulatory calendar with a review point in early 2027.
Know which of your Illinois merchants would be inside the law
Two facts per merchant decide it: whether it collects and remits Illinois tax, which is the statutory definition of a merchant, and which institution sponsors the account. A portfolio report of Illinois merchants grouped by sponsor bank, with each sponsor's charter type recorded, is an afternoon's work now and a scramble in June 2027. Merchants on an Illinois-chartered sponsor are the segment to raise with that sponsor first.
Find out whether your stack already carries the data
The point-of-sale route turns on the merchant transmitting the tax or gratuity amount in authorization or settlement. Whether your gateways and POS integrations pass a tax amount and a tip amount at all, and in a form the settlement file preserves, is answerable today without committing to anything, and it tells you which merchants would land on the 180-day paper route, the expensive one for everyone.
Have a one-paragraph answer ready for merchants
Illinois merchants have read that the state banned swipe fees on tax and tips. The accurate version: the law does not start until July 2027, a federal court has blocked its enforcement against national banks, most out-of-state banks and the card networks, it still applies on paper to Illinois state banks and to credit unions, federal ones included, and nothing changes on their statement in the meantime. A merchant promised the tax portion of interchange back by a competitor's rep should ask which bank is going to pay it.
Watch the other states
The court's opinion notes, citing trade press from May 2026, that eleven other states have begun pursuing similar measures. Colorado's was the first to reach a governor's desk after the OCC acted, and it was vetoed.
The One-Line Version
Illinois still has a law that says interchange cannot be charged on tax and tips. As of September 2026 it does not start until July 2027, it cannot be enforced against national banks, most out-of-state banks or the card networks, it still binds Illinois-chartered banks and federal credit unions on paper, and where that leaves a processor depends on whose bank it is standing behind. Record which merchants would be affected, find out whether your systems already carry tax and tip amounts, and build nothing else until the Seventh Circuit has spoken.
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About the author
Kyle Hall
Founder
Kyle Hall is a fintech entrepreneur, software engineer, and marketing strategist with over a decade of experience in high-risk payment processing and SaaS development. He is the CEO of PayKings, a leader in high-risk merchant services, and the founder of PulseCRM, a purpose-built CRM platform for the payments industry. Kyle specializes in building custom payment processing systems and growth strategies that empower merchant services providers to scale and succeed in the digital marketplace.