OCC Takes a Side in Illinois Swipe Fee Fight

Law firm Hinshaw & Culbertson laid out the stakes in a new analysis published this week, and the picture is striking. Just five weeks after a federal district court largely upheld Illinois’ Interchange Fee Prohibition Act, a law designed to stop banks and payment networks from collecting fees on the tax and tip portions of transactions, the Office of the Comptroller of the Currency stepped in. On March 16, the OCC filed what’s called an amicus brief, essentially a formal statement of interest, in a Seventh Circuit appeal of that ruling. The OCC is siding with the banks.

The law at the center of the fight, known as the IFPA, was enacted in 2024. According to Hinshaw’s analysis, it bars card issuers, payment networks like Visa and Mastercard, and payment processors from collecting interchange fees on the portions of purchases that represent sales taxes or gratuities. To make the law work, merchants would have to identify and transmit that tax-and-tip data separately. Violators face $1,000 per transaction in civil penalties.

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The OCC’s brief didn’t mince words. Joining the Bank Policy Institute and the Consumer Bankers Association, the agency called the Illinois law “an improper and undeniable state interference with federally authorized banking powers.” It warned that if the law isn’t permanently blocked, it “will erode the essential infrastructure of the payments system” and force banks and financial institutions to spend what it described as “staggering” sums to comply with a single state’s rules.

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The district court judge who originally reviewed the case, Virginia Kendall, had found a key distinction: national banks don’t actually set interchange fees; the payment networks do. That, she concluded, meant the National Bank Act didn’t override the Illinois law. She did, however, block one piece of the IFPA, a provision limiting how payment data could be used, finding that it went too far in restricting banks’ ability to monitor for fraud.

The OCC called that reasoning “convoluted” and said it missed the bigger picture. The agency argued that the judge’s analysis was too narrow, focusing too much on who technically “sets” the fees rather than looking at how those fees connect to national banks’ broader legal powers.

The timeline is tight. Illinois’s attorney general is expected to respond in early April, and the Seventh Circuit is expected to move quickly. A decision is needed before the law takes effect on July 1, 2026.

The implications stretch well beyond Illinois. As Hinshaw notes, at least 20 other states have introduced similar legislation. A ruling in Illinois’ favor could open the door to a patchwork of state-by-state swipe-fee rules across the country, a prospect the banking industry clearly views as an existential threat to how the payments system works. A ruling for the banks, on the other hand, could effectively shut down the growing state-level push to limit interchange fees before it gains any more momentum.