Illinois’s interchange fee law is permanently enjoined for most entities after OCC preemption, but a fragmented outcome sets the stage for further appeals.

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

Key Points:

  • Following OCC intervention, the IFPA’s Interchange Fee Limitation was permanently enjoined for national banks, federal savings associations, out-of-state state banks, and payment card networks.
  • Illinois-chartered state banks and credit unions remain subject to the IFPA, creating a fragmented compliance landscape that will spur further appellate litigation.
  • The Illinois General Assembly again deferred the IFPA’s effective date by a year, this time to July 1, 2027.

On June 1, 2026, the US District Court for the Northern District of Illinois issued a 28-page ruling (the Ruling) in the case of Illinois Bankers Association v. Raoul, permanently enjoining the Interchange Fee Limitation of the Illinois Interchange Fee Prohibition Act (IFPA) for most covered entities. The IFPA sought to carve out from bank and payment network interchange calculations (aka “swipe fees” on credit or debit transactions) the portion attributable to state and local taxes and gratuities. The Ruling, on remand from the Seventh Circuit, states that in the aftermath of the April 2026 preemptive actions by the Office of the Comptroller of the Currency (OCC), national banks, federal savings associations, out-of-state state banks, and payment card networks are exempted from the IFPA’s Interchange Fee Limitation.

The IFPA’s interchange fee restrictions were slated to take effect on July 1, 2026, one year later than originally intended after the Illinois General Assembly extended the effective date to account for litigation. However, on the same day as the Ruling, the Illinois General Assembly passed Senate Bill 3645, deferring the effective date yet again to July 1, 2027. The bill must be signed by the governor to take effect.

Procedural Context

  • On February 10, 2026, Chief Judge Virginia M. Kendall of the US District Court for the Northern District of Illinois issued a 47-page Memorandum Opinion and Order resolving cross-motions for summary judgment regarding the IFPA. The court upheld the IFPA’s Interchange Fee Limitation, reasoning that it does not directly regulate national banks and falls outside National Bank Act (NBA) preemption because payment card networks set interchange fees, not banks. However, the decision permanently enjoined the statute’s Data Usage Limitation provision, which prohibited entities other than merchants from using transaction data “except to facilitate or process the electronic payment transaction or as required by law.” Judge Kendall found this provision “directly constrains” national banks’ broad and “express” federal power to engage in data processing for activities like fraud monitoring and loyalty programs. (See this Latham blog post.)
  • On March 2, 2026, the Seventh Circuit granted the banking and credit union trade groups’ unopposed motion to fast-track their appeal, seeking resolution on whether and to what degree the NBA and other sources of federal law preempt the IFPA. The court scheduled oral arguments for mid-May 2026, with the parties seeking a decision by June 15, 2026, two weeks before the IFPA’s July 1 effective date.
  • On April 24, 2026, the OCC announced an interim final rule and interim final order addressing the IFPA while the case was pending before the Seventh Circuit on appeal. The interim final rule affirmed 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 (i.e., payment card networks), directly addressing and undermining the Northern District of Illinois’s rationale for denying IFPA preemption. The interim final order confirmed 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. 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. (See this Latham blog post.)
  • On May 8, 2026, the Seventh Circuit vacated the district court’s February 2026 ruling and remanded the case, stating that “[t]he district court should address these matters [i.e., the OCC’s preemptive actions], and any related issues, before this court attempts to do so.” The court therefore canceled oral argument scheduled for May 13.

The Ruling

The Ruling by the District Court on remand from the Seventh Circuit is a reconsideration of its February 2026 decision in light of the OCC’s preemptive actions. In the Ruling, Judge Kendall acknowledges that protecting fees established by a third-party company “is very clearly what the new iteration of the rule sets out to do.”

In analyzing whether a permanent injunction would or would not harm the public interest, Judge Kendall stated that “while there is strong public interest for the people of Illinois to see their legislative determinations come to fruition, there is a stronger interest still in ensuring the Supremacy Clause [Article VI, Clause 2 of the US Constitution] is properly effectuated.”

Judge Kendall therefore concluded that “in light of the new regulation, the Interchange Fee Limitation does ‘impose an undue burden on the performance of the banks’ functions’ … and thus is invalid with regard to national banks, federal savings associations, and out-of-state State banks.” The permanent injunction also extends to payment card networks, as the court found the preemptive effect “must run to the Payment Card Networks and others involved in the payment process.”

However, state banks chartered in Illinois and federal and state credit unions are still subject to the Interchange Fee Limitation under the Ruling, a mixed result that Judge Kendall acknowledged: “The present result, based on the arguments presented, leaves a complicated legacy, with the IFPA’s Data Usage Limitation and the Interchange Fee Limitation enjoined as to most, but not all, entities. Compliance with the remaining provision of the law may still prove overwhelmingly arduous for some remaining financial institutions.”

Another appeal to the Seventh Circuit is therefore highly likely, as indicated in a statement issued by the co-plaintiffs. The Ruling, they noted, “does not fully resolve the challenges created by [the IFPA]. Even with this decision, credit unions and Illinois-chartered banks remain subject to IFPA, creating ongoing uncertainty and the risk of inconsistent treatment for parties in the same transaction. … We look forward to the 7th Circuit’s review of this misguided law.”

The Administrative Procedure Act (APA) Question Remains Unresolved

Judge Kendall identified multiple procedural and substantive deficiencies in the OCC’s interim final order, noting that it was signed by the First Deputy Comptroller rather than the Comptroller personally, potentially violating the Dodd-Frank Act’s non-delegation requirement under 12 U.S.C. § 25b(b)(1)(B) and (b)(6), and that the OCC’s invocation of a “safety and soundness” emergency to bypass notice-and-comment rulemaking was difficult to reconcile with the narrow circumstances in which courts have historically permitted such exceptions. Despite these findings, she concluded that the court was “not in a posture to invalidate the Interim Final Order under the APA” because the OCC was not a party to the litigation and no APA claim had been pleaded. These unresolved procedural issues may prove significant on appeal or in a standalone APA challenge.

The Delayed Effective Date

As noted above, the Illinois General Assembly voted to delay the effective date of the IFPA to July 1, 2027. The decision was met with mixed responses.

  • Bank and credit union trade groups applauded the delay as a “reasonable step,” stating that it “will protect Illinois businesses and consumers from facing payment chaos in just a month, without interrupting our ongoing legal challenge to IFPA.” Again indicating their intent to appeal the Ruling, they noted that they “look forward to securing permanent relief from this misguided law.”
  • The Illinois Retail Merchants Association disapproved of the delay and vowed to continue litigating the case, stating: “The fight against onerous swipe fees is not over, and we remain hopeful the courts will ultimately uphold this vital relief package.”

Conclusion

While the OCC’s mid-litigation rulemaking successfully resolved the preemption issue in plaintiffs’ favor, the court expressed skepticism toward both the process and substance of the OCC’s actions, calling the timing of the intervention “an unflattering one” and its justifications unpersuasive. She stated, “The Interim Final Order, in its attempts to justify preemption, does little to establish why letting third parties manage interchange fee rates is critical to the national bank’s exercise of its federal powers, instead focusing on why that system is generally convenient,” pointedly noting that “much of the Interim Final Order perches atop the catch-all justification of this is how things are done around here.”

The resulting compliance patchwork, where national banks are shielded but state-chartered banks and credit unions are exposed, introduces notable operational complexity into a payments infrastructure premised on standardized processing across all participants.

With multiple states now pursuing similar interchange fee legislation and further Seventh Circuit review pending, the ultimate resolution will likely require either definitive appellate guidance or congressional action.

Colorado Update

In March 2026, the Colorado General Assembly advanced SB 26-134, a bill banning interchange fees on the sales tax portion of transactions. Colorado’s measure would have regulated card networks directly rather than banks. This approach was originally designed to fall outside OCC preemption authority (since the OCC’s jurisdiction extends to banks, not card networks), but the OCC’s interim final rule undermined this thesis.

However, on June 3, 2026, Colorado Governor Jared Polis vetoed the bill, stating that “the bill presents too much legal risk to Colorado’s business environment and consumers.” Referencing the legislative and judicial saga of the IFPA, including federal preemption by the OCC, Governor Polis noted, “The ongoing legal and legislative developments of IFPA create unstable grounds for passage and implementation of SB 26-134 in Colorado.”