Federal Government Blocks Illinois Credit Card Fee Law

The federal government has taken action to block an Illinois law that bans certain credit card fees, a move that, while favoring financial institutions, may complicate things for state-chartered banks as lawmakers weigh their options.

Late Friday, the Office of the Comptroller of the Currency, which operates under the U.S. Treasury Department, issued an order that preempts Illinois’ inaugural legislation on credit card interchange fees. This has been met with praise from the Bankers Association, but retailers are less than thrilled. The announcement follows earlier hints from the department about this decision.

This order marks another chapter in a dispute stretching nearly two years, with tensions flaring between banks and retailers over the Illinois law, which has seen courtroom battles as well as airing in various public forums including Springfield and even Washington.

However, since the federal order is primarily directed at national banks, financial institutions and their supporters—such as the Electronic Payments Coalition—argue that state legislatures still need to step in to ensure the Illinois law doesn’t go into effect. If they don’t, smaller institutions like credit unions could incur implementation costs, even if larger national banks are exempted.

“You can’t have a law concerning banking and credit cards that only applies to certain banks,” noted state Senator Mark Walker (D-Arlington Heights), who is behind the repeal bill.

“I think we might see some changes by July 1,” he stated, mentioning the law’s scheduled effective date, “but I’m not sure what those changes will look like. That’s the situation we’re in.”

Walker mentioned that discussions between supporters and opponents of the law are happening throughout the day in Springfield. There’s talk of possibly delaying the law’s implementation again, similar to what was done last year during ongoing litigation.

On the same day, Governor J.B. Pritzker acknowledged uncertainty about whether the state would need to enact such a delay, suggesting that federal law might indeed supersede state law.

The state law, enacted in 2024, prohibits what are known as swipe fees—or interchange fees—on taxes and tips included in customer bills. The purpose of this is to limit the fees charged by credit card companies to retailers, which, under the existing structure, calculate their fees based on the complete transaction amount, inclusive of product price, taxes, and tips. Financial institutions argue that following the law would be overly burdensome and costly, affecting not just their sectors, but small businesses and consumers alike.

The National Retail Federation reports that these processing fees generally hover just above 2% for each transaction.

A federal judge recently ruled that some aspects of the Illinois law could come into effect, a decision welcomed by retailers who supported the legislation. Bank and credit union representatives are preparing to appeal, with oral arguments slated for May 13. Those joining the appeal, including the Illinois Bankers Association and the American Bankers Association, have applauded the federal preemptive order.

Rob Carr, president and CEO of the Illinois Retail Merchants Association and a key advocate for the swipe fee ban, criticized what he described as the Trump administration’s efforts to obstruct the law.

“It’s troubling to see attempts to circumvent legislation, undermine legal systems, and intimidate consumers,” Carr remarked, expressing confidence that the courts will ultimately decide rather than external entities catering to large banks and credit card companies.

The General Assembly, led by Democrats, enacted a ban on swipe fees as part of a broader arrangement with retailers who are against individual tax hikes on businesses. Both measures were included in the national budget for 2024. Since then, financial institutions have been raising concerns—through court cases and media channels—about potential disruptions to trading and payment systems.

At a press conference just prior to the federal rule’s implementation, Ben Jackson from the Illinois Bankers Association noted that some banks might consider dropping credit card products that Illinois consumers and businesses currently benefit from.

Retailers respond that the law would actually lower costs for businesses and consumers, arguing that fears of widespread disruption are exaggerated.

State Representative Margaret Croke, a Democrat from Chicago who sponsored the repeal bill, expressed a desire to avoid creating an uneven playing field that might impose unfair penalties on state-chartered banks and credit unions.

Croke, also running for Illinois State Comptroller as a Democrat, suggested delaying the bill’s enactment “at a minimum,” arguing that federal intervention could bolster the case for a complete repeal.