OCC preempts Illinois interchange law, cites national payments issues

The Office of the Comptroller of the Currency issued an order preempting the Illinois Interchange Fee Prohibition Act (IFPA), concluding that federal law overrides the state measure and warning that the law could disrupt the nation's payments system.

The OCC's April 24, 2026, action, issued as an interim final rule, states that the IFPA conflicts with federal banking law by attempting to regulate fees and practices tied to national banks and the broader card payments ecosystem.

The Illinois law, which sought to restrict interchange fees on certain portions of card transactions such as sales tax and gratuities, had raised concerns across the payments industry about operational feasibility and broader systemic impacts.

Concerns over fragmentation, operational risk

In its order, the OCC emphasized that allowing individual states to impose differing requirements on card transactions could lead to fragmentation in a system that depends on uniform rules and standards.

Industry participants echoed that concern. Steven Peisner, vice president of sales and marketing for Acquiring Solutions International Inc., said the issue extends beyond pricing. "The OCC's April 24, 2026, action confirming that Federal law preempts the Illinois Interchange Fee Prohibition Act is not just a banking issue—it is a necessary step to preserve strength and stability in the card payment network," he said.

He described interchange as part of a highly integrated global system involving real-time authorizations, fraud protection, issuer risk and settlement guarantees that cannot be easily separated into components without consequences.

"Trying to surgically remove sales tax and gratuities from interchange might sound simple to a judge in theory, but operationally it creates an unworkable and dangerous precedent," Peisner noted. "If not overturned, it could have started an economic avalanche worse than the ripple effects of COVID-19."

He also warned that allowing states to dictate which parts of transactions are subject to interchange could undermine the consistency of payment networks. "If every state starts deciding which part of a transaction can or cannot be assessed, the entire system becomes fragmented, expensive and unreliable for merchants and consumers alike," he said. "It would mean that all tracks stop at Illinois borders."

Industry groups back federal action

The Electronic Transactions Association welcomed the OCC's decision, framing it as essential to maintaining a cohesive national payments system.

"The OCC recognizes the value of the national/global payments industry to consumers, merchants—especially small merchants—and the U.S. economy," said Jodie Kelley, the association's CEO.

Kelley added that the agency's action provides "critical clarity, stability, and legal certainty" by preventing what she described as a patchwork of state-level requirements. "A fragmented, state-by-state approach to national payment activities would undermine efficiency, increase costs for consumers and businesses, and jeopardize the reliability of secure electronic payments," she said.

The ETA noted that the payments industry contributes significantly to the U.S. economy, supporting millions of jobs and facilitating trillions of dollars in transactions annually.

Infrastructure versus fee debate

While the IFPA was framed by its supporters as a measure to limit merchant costs, critics argue the issue is fundamentally about preserving the integrity of payments infrastructure. "This was never about 'protecting fees.' It is about protecting infrastructure," Peisner said.

He pointed to the interconnected nature of card networks, which link thousands of issuing banks and acquiring institutions, as well as processors and gateways, through standardized systems designed to function consistently across jurisdictions.

"The OCC correctly recognized that the IFPA would create a dead zone so complex it was potentially unworkable, and destabilizing for national banks, regional banks, independent payment processors, and the nation's payment card systems," Peisner said.

The OCC's action effectively halts enforcement of the Illinois law as it applies to national banks and federal savings associations, reinforcing the principle that federal law governs key aspects of the payments system. For now, the decision provides a measure of certainty for industry participants, though the broader debate over interchange fees and state-level regulation is likely to continue.

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