OCC Preempts Illinois Interchange Fee Law: What National Banks Need to Know Before July 1, 2026

TL;DR

• The OCC issued two interim final actions on April 25, 2026 preempting the Illinois Interchange Fee Prohibition Act (IFPA), which is scheduled to take effect July 1, 2026
• National banks and federal savings associations are NOT required to comply with the Illinois IFPA under the OCC’s preemption determination
• The IFPA would have banned interchange fees on the tax/gratuity portions of card transactions and restricted payment card data use — creating operational complexity for payment systems nationwide
• Compliance teams: document this in your regulatory change log, monitor comments and litigation, and confirm operations teams aren’t making unnecessary IFPA-driven system changes

Illinois tried to rewrite the economics of payment card transactions. The OCC said no.

On April 25, 2026, the Office of the Comptroller of the Currency issued two interim final actions preempting the Illinois Interchange Fee Prohibition Act (IFPA) — a state law scheduled to take effect July 1, 2026 that would ban national banks and card networks from charging interchange fees on the tax and gratuity portions of payment transactions and would restrict the use of payment card data.

The OCC’s message was direct: federal law governs what national banks can charge and how they can use payment data. A patchwork of state-by-state interchange rules creates the kind of “complex, potentially unworkable, and destabilizing standard” the National Bank Act was designed to prevent.

For compliance officers at national banks and federal savings associations, the bottom line is clear. But the broader landscape — an ongoing federal lawsuit, a February 2026 court ruling that partially upheld the IFPA, and an Illinois AG still fighting — means this isn’t a story you file and forget.

What the Illinois IFPA Would Have Done

The Illinois Interchange Fee Prohibition Act was signed into law in June 2024 and scheduled to take effect July 1, 2026. It had two main prongs:

Interchange fee restrictions: Card networks and financial institutions would be prohibited from charging or receiving interchange fees on the tax and gratuity portions of payment card transactions. Currently, interchange fees apply to the full transaction amount. The IFPA would have required networks to surgically separate the tax/tip amounts from the base transaction and exempt them from interchange.

Data use restrictions: The IFPA would also have restricted how payment card transaction data could be used after the transaction was processed — limiting data sharing and secondary use in ways that conflicted with existing federal frameworks.

The operational implications were significant. Payment card systems process billions of transactions without distinguishing taxed amounts in real time. Retrofitting those systems to carve out interchange on tax and tip portions would require substantial infrastructure changes at card networks, issuing banks, and acquirers.

The American Bankers Association called it a move that would “wreck havoc” on payment systems. The Electronic Transactions Association called the OCC’s preemption action a critical step to preserve payment system stability.

The OCC’s Two-Part Response

The OCC issued two parallel actions:

1. Interim Final Rule: “National Bank Non-Interest Charges and Fees”

This rule clarifies that national banks possess longstanding authority under the National Bank Act to charge and receive interchange fees, regardless of whether those fees are set by the bank or a third party such as a card network. The rule reaffirms the federal legal basis for interchange fee practices that have existed for decades.

The practical effect: this rule makes explicit what the OCC views as already settled — national banks’ interchange authority derives from federal law and cannot be curtailed by state action.

2. Interim Final Order: Preemption of the Illinois IFPA

The second action is the preemption determination itself. The OCC concluded that federal law preempts the Illinois Interchange Fee Prohibition Act in its application to national banks and federal savings associations.

The order’s core holding: national banks and federal savings associations are neither subject to nor required to comply with the Illinois IFPA.

The OCC framed the IFPA as creating an unworkable standard that conflicts with federal bank powers — precisely the situation the National Bank Act’s preemption framework was designed to address.

Why This Is Complicated: The Ongoing Litigation

The OCC’s preemption actions don’t exist in a vacuum. The IFPA has been in federal court since before it took effect, and the litigation history matters:

February 2026: A federal court issued a ruling partially upholding the Illinois IFPA. The court found that at least some provisions of the law were not fully preempted — a holding that created uncertainty for card networks and banks trying to determine their compliance obligations.

March 2026: The OCC and a group of former Comptrollers filed in court urging the appellate court to overturn the February ruling. This signaled the OCC’s clear position on the law — months before the interim final actions were formally issued.

April 2026: The OCC formalized its position through the interim final rule and interim final order, creating regulatory authority to support the preemption claim even as litigation continues.

Comment period: Comments on the interim final order are due 30 days after Federal Register publication. This is an opportunity for industry stakeholders — and potentially the Illinois AG — to submit formal record comments.

Illinois AG position: The Illinois Attorney General is actively defending the IFPA on appeal. The OCC’s actions do not automatically end the litigation or prevent the court from reaching a different conclusion.

The practical risk for compliance officers: the OCC says national banks don’t have to comply with the IFPA. A court could reach a different conclusion. Monitoring both the regulatory track and the litigation track is essential.

Who Is and Isn’t Covered by the OCC Preemption

Understanding the scope of the OCC’s authority matters here:

State-chartered banks need to pay closer attention to the ongoing litigation and their state regulator’s position. Credit unions should monitor NCUA guidance. The OCC’s action protects a significant portion of the banking system, but it’s not universal.

The Broader Pattern: Federal vs. State in Financial Services

This isn’t the first time federal banking regulators have moved to preempt state laws that create operational complexity for nationally chartered institutions. It won’t be the last.

The GLBA preemption debate — covering whether Congress would preempt state privacy laws for banks — follows the same fundamental tension: states legislate to fill perceived gaps in federal consumer protection, and federal regulators respond that uniform national standards serve the banking system better than a patchwork of state requirements.

The OCC has also been active on other fronts. The updated model risk management guidance issued earlier this month signals a regulator that’s actively updating its supervisory frameworks. The OCC’s reputational risk rule changes reflect a broader rethink of what banks should and shouldn’t be penalized for under examination.

The IFPA preemption fits this pattern: the OCC is asserting federal authority in areas where state action has created operational uncertainty for nationally chartered institutions.

What Compliance Teams Should Do Now

1. Log this in your regulatory change management process. Even though the practical outcome for national banks is “no new compliance obligation,” regulatory changes — including preemptions — belong in your regulatory inventory. Document: the OCC’s interim final rule and interim final order, the effective date, the scope (national banks and FSAs), and the open items (comment period, litigation).

2. Confirm operations teams aren’t making IFPA-driven system changes. Some banks may have been preparing for IFPA compliance before the OCC action. Operations and technology teams that started building tax/tip segregation into payment processing should know this is now on hold — and may not be necessary at all for nationally chartered institutions.

3. Monitor the Federal Register for the comment period start date. The 30-day comment window begins when the interim final order is published in the Federal Register. If your institution has views on the rule’s scope or implementation, that’s the window to file.

4. Track the litigation. The February court ruling that partially upheld the IFPA is on appeal. The OCC’s preemption determination is the agency’s administrative position — but a court ruling against preemption would create a direct conflict. Your legal and compliance teams should be monitoring the appellate docket.

5. Consider state bank subsidiaries separately. If your holding company includes both a national bank and a state-chartered subsidiary, the preemption determination applies to the national bank only. State-chartered subsidiaries remain potentially subject to IFPA obligations depending on how the litigation resolves.

6. Brief senior leadership. The IFPA was industry news for two years before this resolution. Executives who were tracking it need an update: for nationally chartered banks, the OCC says you’re out. But the story isn’t fully closed yet.

For tracking regulatory change items like these — new guidance, preemption determinations, open comment periods, litigation monitoring — an Issues Management Tracker gives compliance teams a central log for flagging, assigning owners, setting follow-up dates, and closing items when resolved.

The July 1 Deadline Is Still Relevant

Even with the OCC’s preemption, compliance teams shouldn’t ignore July 1, 2026. That date remains meaningful for:

• State-chartered banks and credit unions: No preemption protection from the OCC. These institutions need to watch the litigation closely and consult with legal counsel about their obligations.
• Card networks: The OCC preemption covers banks, not card networks themselves. Visa, Mastercard, and other networks need to evaluate their own legal analysis and the ongoing court proceedings.
• Comment period: If the Federal Register publication comes soon, the 30-day comment period could end right around the July 1 effective date.

The OCC has moved decisively to protect national banks from the IFPA. Whether that protection holds through the courts and the comment period is the open question compliance officers need to keep tracking through the summer.

Sources:

• OCC Preemption of Illinois Interchange Fee Prohibition Act: Interim Final Order — OCC.gov
• OCC Moves to Block Illinois Ban on Swipe Fees on Taxes, Tips — American Banker
• OCC Plans to Preempt Illinois Interchange Law — Payments Dive
• ABA: Illinois Interchange Law Will ‘Wreck Havoc’ on Payment Systems — ABA Banking Journal
• Federal Court Partially Upholds Illinois Interchange Fee Law — ABA Banking Journal