Federal Government Challenges Illinois Credit Card Fee Ban

The federal government is attempting to block an Illinois law that prohibits certain credit card fees, a move that could potentially favor financial institutions that have been contesting this state legislation in court for over a year.

The Office of the Comptroller of the Currency, which operates independently within the U.S. Treasury Department, plans to issue an order that would override the Illinois Exchange Fee Prohibition Act. Details of this order were not fully disclosed in the recent announcement.

This state law, enacted in 2024 and set to take effect in July, aims to eliminate specific swipe fees—sometimes referred to as interchange fees—related to taxes and tips on customer bills. The intention is to reduce the overall costs charged by credit card companies to retailers.

Currently, credit card firms and financial institutions calculate their fees as a percentage of the total transaction amount, which includes merchandise costs, taxes, and tips. The Illinois law seeks to ban these additional fees on customer bills, with financial institutions claiming the new regulations would be challenging and costly to implement, affecting not just their operations, but also small businesses and consumers in general.

A federal judge ruled in February that significant parts of the American First Act could proceed, prompting banks and credit unions to appeal, although retailers supporting the legislation celebrated the decision.

Rob Carr, president of the Illinois Retail Merchants Association, criticized the federal government’s quick decision to intervene, suggesting it prioritizes the interests of banks and credit card companies over tangible benefits for businesses and consumers. He noted the lack of public explanation for this move, calling it a clear attempt to bypass the legal process after the judge’s recent support of the law.

In response to the ongoing lawsuit, lawmakers postponed the law’s effective date from last July to July 2026.

Last year, the Democratic-led General Assembly approved a ban on swipe fees, which was advocated by retailers aiming to prevent individual tax hikes. These initiatives were included in the national budget for that year. Since then, various financial institutions have voiced concerns in court, through advertisements, and in public discussions about the potential disruptions this could cause to payment systems and trading.

Retailers, on the other hand, argue that the credit card law will ultimately lower costs for both businesses and consumers, asserting that worries about inconvenience are exaggerated.

Kerr stated, “Banks, credit card companies, and credit card processors are actively trying to maintain an unfair system, spending significant sums on misleading ads that create confusion among consumers.”

State Rep. Margaret Croke, a Democrat from Chicago who sponsored the repeal effort, expressed a measured stance regarding the federal notice targeting the Illinois legislation. She mentioned her interest in assessing whether the directive from the Trump administration applies to both national and regional banks.

Croke remarked on the uncertain implications of the federal government’s action, stating, “In this federal government, we don’t even know if that’s helpful or not.” She recently secured the Democratic nomination for Illinois state comptroller, a role that involves overseeing state financial obligations.

Alongside her position as chair of the House Financial Institutions and Licensing Committee, Croke shared that her reasoning for promoting the repeal was rooted in concerns about the interchange fee law, which passed through Congress several years ago without thorough debate. She indicated a desire for further delays before any implementation.

“Legislators seem to still be grasping the nuances of these interactions, and that’s part of the challenge,” she said. “With the implementation date approaching on July 1, the pressure is mounting.”

State Sen. Mark Walker, a Democrat from Arlington Heights and fellow sponsor of the repeal, echoed Croke’s cautious sentiment regarding the federal announcement, while also commenting on the impracticality of the current state law.

He said, “We’ll need to examine what exactly the Fed has done.”

Ben Jackson from the Illinois Bankers Association noted during a press conference that in light of the new law, some banks are contemplating withdrawing credit cards and other services beneficial to Illinois consumers and businesses. He argued for the bill’s repeal, suggesting it wouldn’t have gained approval had it faced more rigorous examination two years prior.