Illinois Interchange Fee Prohibition Act: Delays, Lawsuit and Next Steps
Where the Illinois Interchange Fee Prohibition Act stands after the 2027 delay vote and court rulings, and how to prepare your POS for tax and tip data.
Photo: Pixabay
On this page 7 sections
- What the Illinois Interchange Fee Prohibition Act Requires
- IFPA Delay Timeline: From 2024 Enactment to the 2026 Vote
- Illinois Swipe Fee Law Lawsuit: What the Courts Have Ruled
- Which Card Issuers and Transactions May Be Covered
- Interchange on Tips and Sales Tax in Illinois: Who Benefits and Where It Gets Hard
- How to Prepare Your POS and Processor Before the Effective Date
- What to Watch Next
Key takeaways
- The IFPA did not take effect on July 1, 2026. Lawmakers voted on June 1, 2026, to push the date to July 1, 2027. Check the final enacted text.
- After the OCC stepped in, a federal court blocked the core fee ban for federally chartered banks. Reports say Illinois-chartered banks and credit unions are still covered.
- Even if the law survives, some card transactions in Illinois may not be covered, depending on who issued the card.
- Use the delay to set up your POS to send sales tax and tips as separate amounts, and get written answers from your processor.
The Illinois Interchange Fee Prohibition Act (IFPA) rests on a simple idea: card fees shouldn't apply to money you never keep. That includes the sales tax you send to the state and the tips you pass to your staff. The law passed more than two years ago and still hasn't taken effect. It has been delayed twice, and a federal lawsuit has narrowed who it applies to.
This guide covers four topics separately:
- What the IFPA says
- What the legislature has delayed
- What the courts have ruled
- A checklist for getting your POS and processor ready
Status as of October 23, 2026: The IFPA is not in effect. On June 1, 2026, the General Assembly voted to move the effective date from July 1, 2026, to July 1, 2027. Federal court rulings and federal regulators have also blocked the law for many card issuers. This article is based on court filings and reporting available through summer 2026. Check for newer developments before you make decisions.
What the Illinois Interchange Fee Prohibition Act Requires
Interchange is the fee the card-issuing bank receives on each card sale. It's usually the largest part of what you pay to process a card. Today it's calculated on the full transaction amount, including tax and tip. For background on how these costs fit together, see our plain-English guide to merchant services.
The IFPA is codified at 815 ILCS 151/150-1 et seq. and would change how interchange is calculated. According to a Legalink summary of the bill, it bars issuers, acquirers, processors and card networks from receiving or charging interchange on the tax amount or the gratuity in an electronic payment transaction. Merchants would have two ways to comply:
- Designate tax and tip in real time. You flag the tax and tip amounts during authorization or settlement.
- Submit data after the sale. If you don't flag them in real time, you can send the tax and tip data within 180 days and get back the interchange charged on those amounts.
The law also limits the use of payment data for anything other than processing the transaction, with a penalty of $1,000 per violation. A court has since blocked that data provision for most institutions, as described below. For a related look at protecting customer data beyond card numbers, see our guide to locking down loyalty program data after the More Rewards breach.
The example below is illustrative only. The numbers are invented and are not actual rates:
| Illustrative restaurant check | Amount |
|---|---|
| Food and drinks | $100.00 |
| Sales tax | $10.00 |
| Tip | $20.00 |
| Total charged | $130.00 |
| Interchange at an assumed 2% on $130 (current method) | $2.60 |
| Interchange at an assumed 2% on $100 (IFPA method) | $2.00 |
Here the difference is 60 cents on one check. Your actual effect depends on four factors:
- Your interchange rates
- Your typical ticket size
- How much of each sale is tax and tip
- Which cards your customers use
IFPA Delay Timeline: From 2024 Enactment to the 2026 Vote
| Date | What happened |
|---|---|
| June 2024 | IFPA enacted as part of a budget implementation bill. Original effective date: July 1, 2025 |
| Dec. 20, 2024 | Federal court grants a partial preliminary injunction |
| Early 2025 | Injunction extended to out-of-state, state-chartered banks |
| June 16, 2025 | Gov. Pritzker signs HB 742, moving the date to July 1, 2026 (CUInsight) |
| Feb. 10, 2026 | District court upholds most of the fee ban but blocks the data provision |
| Apr. 24, 2026 | OCC issues an interim final rule and an interim final order saying federal law preempts the IFPA |
| May 2026 | Seventh Circuit vacates the February ruling and sends the case back |
| June 1, 2026 | Legislature votes to delay again, to July 1, 2027. The district court issues a new opinion the same day |
| July 1, 2026 | The law does not take effect |
The second delay was part of budget legislation (SB3645). PYMNTS reported on June 1 that the new date would take effect once the governor signed the bill. Both NPR Illinois and later merchant-side coverage describe July 1, 2027, as the new date. Check the final public act on the Illinois General Assembly website before you plan around it.
Illinois Swipe Fee Law Lawsuit: What the Courts Have Ruled
The case is Illinois Bankers Association v. Raoul, No. 1:24-cv-07307 (N.D. Ill.), before Chief Judge Virginia M. Kendall.
- Plaintiffs: the Illinois Bankers Association, the American Bankers Association, America's Credit Unions and the Illinois Credit Union League
- Defendant: Illinois Attorney General Kwame Raoul
Preliminary Injunctions (December 2024 and Early 2025)
Across two rulings, the court blocked the law for national banks, federal savings associations and out-of-state state banks. Its reasoning was that federal banking laws likely preempt the IFPA for those institutions.
The court refused to block the law for these groups:
- Federal credit unions
- Card networks and other affiliated companies
- Debit card transactions
Summary Judgment (February 10, 2026)
In its February 10 opinion, the court gave each side part of what it asked for. It upheld the core ban on charging interchange on tax and tips. It also permanently blocked the data-use provision for national banks, federal savings associations, federal credit unions and out-of-state banks. Both sides appealed.
OCC Preemption and the Seventh Circuit Remand (April–May 2026)
On April 24, the Office of the Comptroller of the Currency issued an interim final order concluding that federal law preempts the IFPA for national banks and federal savings associations.
The OCC also issued a rule stating that national banks may charge fees even when a third party, such as a card network, sets them. That rule directly addressed the district court's reasoning.
The Seventh Circuit then took three steps. It vacated the February ruling, canceled oral arguments and returned the case to the district court to weigh the OCC's actions.
The June 1, 2026, Opinion
On remand, Judge Kendall issued a new opinion. According to Consumer Finance Monitor, it significantly changes the February decision.
In light of the OCC rule, the court blocked the IFPA's core interchange restrictions. The National Law Review reported two further points:
- Illinois state-chartered banks and credit unions remain subject to the law.
- The bank plaintiffs plan to keep appealing.
Which Card Issuers and Transactions May Be Covered
The table below is a simplified summary of public reporting through mid-2026. It is not a legal determination.
| Participant | Reported status |
|---|---|
| National banks and federal savings associations | Preempted under the OCC order. Court-ordered injunction in place |
| Out-of-state, state-chartered banks | Preliminary injunction granted in early 2025 |
| Illinois-chartered banks and credit unions | Reported as still subject to the IFPA |
| Federal credit unions | Injunction denied earlier. Trade groups have asked the NCUA for similar protection |
| Card networks and processors | Coverage depends on whose transactions they handle. Ask your processor |
Even after the law takes effect, it may apply to only some of the cards you accept.
As early as June 2025, Payments Dive cited the Electronic Transactions Association as estimating that the first injunction alone left about 90% of Illinois card transactions outside the law. Rulings since then have shifted coverage again.
You can't tell at the counter who issued a customer's card. Your processor and the card networks would have to sort that out.
Interchange on Tips and Sales Tax in Illinois: Who Benefits and Where It Gets Hard
The law matters most to businesses where tax and tips make up a large share of each card sale.
How It Plays Out by Business Type
- Restaurants and bars: Tips are often a large part of the check. Bar tabs and table service rely on adding the tip after authorization, which makes this the hardest case. The tip amount isn't known when the card is authorized, so it has to be reported at settlement. If you hold cards for tabs, review how bar tab preauthorization works. If your tip workflow already has problems, read where credit card tip adjustment goes wrong.
- Salons and spas: Tips on services can be substantial, and they're often entered on a terminal at the chair or front desk. Many salons also sell taxable retail products, so one ticket can include both a tip and a tax amount.
- Retail stores: The benefit comes from the tax portion. That only works if your POS calculates tax as its own line instead of building it into the shelf price.
- Grocery markets: Some items in a basket are taxed and others aren't, so the POS has to total tax correctly across mixed items. EBT and other tender types add complexity at the same register. See our guide to accepting EBT at your grocery store.
- Online sellers: Shopping carts usually calculate tax separately. Whether that tax amount reaches your processor in a field the IFPA process can use depends on your payment gateway setup.
Complications for Every Business
- Pricing model. Under interchange-plus pricing, interchange appears as its own line item, so lower interchange shows up on your statement. With a flat or tiered rate, whether you see the savings depends on your contract. Our comparison of interchange-plus vs. flat-rate pricing explains the difference.
- Service charges vs. tips. Whether an automatic service charge counts as a "gratuity" under the IFPA is a legal question. Ask your attorney.
- Refunds and disputes. Returns and chargebacks on sales where tax and tip were flagged will need to reconcile cleanly.
- The 180-day data route. If you rely on submitting data after the sale, you'll need organized records.
How to Prepare Your POS and Processor Before the Effective Date
You likely have until at least July 2027. Setting this up properly also helps with reporting and reconciliation, even if the law never takes effect. For background on how POS hardware, software and payment processing fit together, see our guide to what a POS system is and how it works.
1. Separate tax from item prices. Make sure your POS records sales tax as its own amount on every transaction. This includes tax-included pricing at the bar or counter. 2. Capture tips in their own field. Tips can be entered on the terminal, added after authorization or written on a signature slip. Confirm that each type lands in the tip field of the settlement batch instead of being added to the sale amount. 3. Check every sales channel. Countertop terminals, handhelds, online checkout and invoices taken by phone may pass data differently. Test each one. 4. Get written answers from your processor. Ask three questions: - Can you send tax and tip amounts at authorization or settlement? - Will you support the after-the-sale data route? - How will any credits appear on my statement? 5. Review your pricing and contract. Find out whether lower interchange would reach you under your current pricing. If you're thinking about switching providers, check for merchant account early termination fees first. 6. Keep transaction records. Store itemized receipts with tax and tip broken out, in a format you can retrieve for at least 180 days. 7. Watch for official guidance. Sign up for updates from your processor and your trade association.
For more questions to put to any provider, see how to choose a merchant service provider. If you're considering one processor for both online and in-store sales, read what Checkout.com's move into stores means for card-present sales.
What to Watch Next
- The final enacted text and public act number for the delay to July 1, 2027
- Any further appeal of the June 1, 2026, opinion to the Seventh Circuit
- Whether the OCC finalizes its interim order and rule after the comment period
- Any NCUA action on behalf of federal credit unions
- Implementation guidance from card networks and processors
The IFPA may change before it ever applies to your cards. Either way, a POS that separates tax and tips cleanly is worth having. To plan your pricing while the case continues, see what merchants should do now during the Illinois swipe fee law appeal.
MannyPay offers POS systems and card terminals for Illinois merchants. To get started, request a free processing quote or contact the MannyPay team.
This article is general information, not legal or tax advice. The IFPA's status has changed several times. Confirm current requirements with a qualified attorney or tax professional before you change your pricing, contracts or POS setup.
Sources
- Illinois Delays Swipe Fee Ban for Another Year (PYMNTS, June 1, 2026)
- Illinois lawmakers delay credit card swipe fee law (NPR Illinois, June 2, 2026)
- Future of Illinois Interchange Fee Prohibition Act Remains Uncertain (National Law Review, June 17, 2026)
- Illinois IFPA Delayed: July 1, 2026 Update (Merchant Cost Consulting)
- Illinois Bankers Association v. Raoul, Memorandum Opinion and Order, Feb. 10, 2026 (Justia)
- Illinois Bankers Association v. Raoul, Opinion and Order on remaining preliminary injunction claims (CourtListener)
- Illinois Interchange Fee Litigation Takes Important Turn (Consumer Finance Monitor)
- Order Preempting the Illinois Interchange Fee Prohibition Act (OCC)
- OCC Preempts Illinois Interchange Fee Law (Latham & Watkins, Fintech and Digital Assets)
- Seventh Circuit sends Illinois interchange litigation back to district court (ABA Banking Journal)
- Appeals Court Resets Illinois Interchange Fee Battle (CU Today)
- Illinois AG Defends State's Interchange Fees Prohibition and Data Usage Limitation on Appeal (Regulatory Oversight)
- Illinois Interchange Fee Prohibition Act: The Bill and the Backlash (Legalink)
- Illinois delays interchange fee law (Payments Dive, June 17, 2025)
- Governor Pritzker signs legislation delaying interchange fee ban until 2026 (CUInsight)
This article is for general educational purposes and is not legal, tax or financial advice. Card network rules and state laws change; confirm current requirements for your business.
