The OCC issued two interim final actions preempting the Illinois Interchange Fee Prohibition Act, causing the Seventh Circuit to vacate and remand related proceedings to the district court.

By Arthur S. Long, Jack McNeily, Parag Patel, Barrie VanBrackle, Pia Naib, Connor Jobes, and Deric Behar

Key Points:

  • The OCC issued an interim final rule clarifying that national banks have longstanding authority to charge non-interest fees (including interchange fees) regardless of whether those fees are set by a third party, directly addressing the Northern District of Illinois’s rationale for denying IFPA preemption.
  • The OCC confirmed in an interim final order that federal law preempts the IFPA, expressly providing that national banks and federal savings associations are neither subject to nor required to comply with this state law.
  • The Seventh Circuit subsequently vacated the district court’s February 2026 ruling upholding the IFPA’s core interchange fee restriction and remanded the case for the district court to evaluate the OCC’s new preemptive actions.

On April 24, 2026, the Office of the Comptroller of the Currency (OCC) announced an interim final rule and interim final order addressing the Illinois Interchange Fee Prohibition Act (IFPA) while the case was pending before the Seventh Circuit on appeal. The US District Court for the Northern District of Illinois had upheld the IFPA’s core interchange fee restriction in a February 10, 2026, ruling (see this Latham blog post). The OCC filed an amicus brief in that case, calling the IFPA “an ill-conceived, highly unusual, and largely unworkable state law.”

In its interim final rule, the OCC characterized the IFPA (originally scheduled to take effect July 1, 2026) as creating a “complex, potentially unworkable, and destabilizing standard for national banks, Federal savings associations, and the nation’s payment card systems,” warning that such effects “could be exacerbated to the extent other states impose similarly unworkable or conflicting standards.”

Both the interim final rule and the interim final order were published in the Federal Register on April 29, 2026, with comments due 30 days after publication, and both are scheduled to take effect on June 30, 2026.

The Interim Final Rule

The interim final rule would amend 12 CFR § 7.4002 to clarify national banks’ authority to charge non-interest fees, including interchange fees, regardless of whether the bank or a third party sets the fee. It responds to what the OCC called a “misunderstanding” by the district court regarding 12 CFR § 7.4002, contradicting Chief Judge Virginia M. Kendall’s analysis that “[t]he thrust of 12 C.F.R. § 7.4002 is not to protect fees centrally established by a third-party company,” and reasoning that because card networks, not banks, set interchange fees, the IFPA did not implicate a protected national bank power.

The revised rule addresses this issue in four ways:

  1. it defines “charge” to mean “to directly or indirectly, through intermediaries, partners, payment networks, interchanges, or other third parties, assess, collect, impose, levy, receive, reserve, take, or otherwise obtain, including through a fee sharing or similar economic relationship”;
  2. it removes the word “customer” from the regulation’s authority provision, clarifying that a bank’s power to receive non-interest compensation does not depend on whether that compensation comes from the service recipient or a third party;
  3. it adds interchange fees from credit and debit card operations as an explicit example of covered charges; and
  4. it amends the business-judgment factors to include decisions about “whether to enter into business relationships or lines of business, and whether [fees] are set by or in consultation with third parties.”

The OCC invoked the Administrative Procedure Act’s (APA) “good cause” exception1 to bypass notice and comment, finding that prior notice was “impracticable” due to regulatory confusion from the district court’s ruling and the potential for banks to take “drastic actions” (including declining card transactions in Illinois) before the IFPA takes effect. The IFPA carries civil penalties of $1,000 per transaction, and with over 6.5 billion card transactions per year in Illinois alone, “participants in the payment card systems could be subject to as much as $6.5 trillion in liability per year for non-compliance with IFPA.”

The Interim Final Order

The interim final order would confirm that federal law preempts the IFPA, providing that national banks and federal savings associations “are neither subject to nor required to comply with” the state law.

Procedurally, the OCC took the position that APA notice-and-comment requirements are not applicable because it is an order, not a rulemaking. In the alternative, the OCC invoked the same good cause exception as it did for the interim final rule. The OCC also asserted that the IFPA is not a “State consumer financial law” under 12 U.S.C. § 25b, a classification the Illinois attorney general has contested.

Under the “Barnett Bank standard” established in Barnett Bank of Marion Cty., N. A. v. Nelson2 and codified by Dodd-Frank,3 a state law is preempted only if it “(i) discriminates against national banks as compared to state banks; or (ii) prevents or significantly interferes with the exercise by the national bank of its powers.” Applying the Barnett Bank standard, the OCC preempted Judge Kendall’s analysis in Illinois Bankers Association v. Raoul by concluding that the interchange fee prohibition prevents or significantly interferes with national banks’ exercise of their federally authorized powers. Applying relevant case law, the order states that the IFPA:

  1. interferes with critical flexibility granted to a national bank under federal law;
  2. interferes with a national bank’s efficiency or effectiveness in exercising its federal power; and
  3. qualifies a federal power in an unusual way.

On the district court’s central finding that card networks, not banks, set interchange fees, the OCC stated that national banks have “clear authority to contract with third parties” and that reliance on a card network is, in the US Supreme Court’s words, “‘one of the most usual and useful of weapons’ in the modern economy.”

Although Judge Kendall granted permanent injunctive relief on the IFPA’s data use limitation provision, the OCC separately concluded that it imposes “a near-complete ban on a national bank’s use of electronic payment transaction data” and is clearly preempted because it deprives banks of the flexibility to use transaction data for risk management and fraud detection. The OCC made its interchange fee and data use preemption conclusions “separate and severable,” stating that if either is vacated or overruled, the other remains in effect.

The OCC warned that “a fractured patchwork of State laws would undermine the uniformity necessary for the functioning of the nation’s payment card systems, thereby materially disrupting interstate commerce.” It also emphasized that its actions “do not affect and are not in conflict with the applicability of any other Federal laws” and that they affirm Congress’s ability “to set consistent standards governing payment card activities.”

Seventh Circuit Remand

On May 8, 2026, the Seventh Circuit vacated the district court’s ruling in Illinois Bankers Association v. Raoul and remanded the case, stating that “[t]he district court should address these matters, and any related issues, before this court attempts to do so.” The court therefore canceled oral argument scheduled for May 13.

Outlook

On remand, the district court will need to confront three principal questions:

  1. what weight the OCC’s preemption order and rule carry after Loper Bright Enterprises v. Raimondo overruled Chevron deference (see this Latham Client Alert);
  2. whether the OCC complied with the APA’s procedural requirements; and
  3. whether the revised 12 CFR § 7.4002, with its expanded definition of “charge” and explicit inclusion of interchange fees, strengthens the case for preemption.

Given that the OCC’s interim final rule and interim final order take effect on June 30, one day before the IFPA takes effect July 1, the district court decision is likely to return quickly to the Seventh Circuit on appeal.

The implications extend beyond Illinois. The Colorado General Assembly has advanced a bill banning interchange fees on the sales tax portion of transactions. Colorado’s measure regulates card networks directly rather than banks, an approach designed to fall outside OCC preemption authority, since the OCC’s jurisdiction extends to banks, not card networks. With similar bills introduced in over 20 states, the resolution of these issues in the Illinois district court and Seventh Circuit (and possibly the Supreme Court of the United States) will shape whether state-level interchange regulation gains traction nationwide.