The Illinois Interchange Fee Prohibition Act faces significant legal challenges ahead of its July 1, 2026, effective date. This first-in-the-nation law prohibits financial institutions and payment networks from charging swipe fees on sales tax and tips. The legislation aims to provide financial relief to merchants who currently pay interchange fees on the total transaction amount.
Banking and credit union associations filed lawsuits arguing the law is unconstitutional and preempted by federal banking laws. A federal appeals court recently sent the case back to a district court for reconsideration. This decision follows recent actions by the Office of the Comptroller of the Currency to preempt the state law. The ongoing legal battle creates uncertainty for businesses and financial institutions as the implementation deadline approaches.