NCUA moves to block Illinois swipe fee law

• Key takeaway: The National Credit Union Administration rule would preempt an Illinois law barring credit card operators from charging interchange fees on taxes and tips, arguing that the statute is preempted by federal law. 
• Expert quote: "As we await the rulemaking's approval and publication, we are relentless in our efforts to challenge the Illinois law and other attempts to create chaos within the payments system." — America's Credit Unions President Scott Simpson
• What's at stake: The Illinois Interchange Fee Prohibition Act is scheduled to take effect July 1, 2026, but is also facing a lawsuit from the banking industry. 

WASHINGTON — The National Credit Union Administration Tuesday submitted a rule asserting that federal law preempts an Illinois statute banning the collection of interchange fees on taxes and tips.

The rule, sent to the Office of Management and Budget's Office of Information and Regulatory Affairs, targets the Illinois Interchange Fee Prohibition Act, which bars credit card operators from charging interchange fees on taxes and tips. The state law is scheduled to take effect July 1, 2026, and is being challenged in court.

Scott Simpson, president and CEO of America's Credit Unions, said the NCUA's action confirms federal preemption for federal credit unions related to interchange fees.

"Paired with the [Office of the Comptroller of the Currency's] previous actions, it is clear that state laws cannot encroach against national authorities nor undermine the safety and stability of our national payments system," wrote Simpson in a statement. "As we await the rulemaking's approval and publication, we are relentless in our efforts to challenge the Illinois law and other attempts to create chaos within the payments system."

The OCC issued a similar interim final rule and accompanying order in April preempting the Illinois law. The agency argued the measure would create a "complex, potentially unworkable, and destabilizing" set of rules for banks and payment card systems, particularly if other states adopt similar laws. 

"These fees, which include interchange fees, compensate these institutions for the costs of their participation, incentivize their provision of services and continued participation in the network, and enable enhancements, such as fraud detection and prevention, rewards programs, and technology upgrades," the interim final order states. "Federal savings associations are neither subject to nor required to comply with these provisions of state law."

Banks charge interchange fees whenever a credit card is used. The swipe fees generally range between 2% to 3% and are intended to cover fraud prevention, payment processing and credit card rewards. Merchants paid nearly $200 billion in such fees last year. Critics of interchange fees say payment systems lack transparency making it impossible to know what interchange fees are charged on any given transaction.

Interchange fees

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The Illinois Interchange Fee Prohibition Act, signed into law by Governor J.B. Pritzker in 2024, would prohibit banks and card networks from charging interchange fees on the sales tax and gratuity portions of transactions.But the law faces obstacles, as it is being challenged in federal court. In May, a circuit judge ruled that the banking industry's lawsuit seeking to block the law should return to a district court in Illinois for further proceedings. Absent further court action, the law is set to take effect July 1. 

Meanwhile, lawmakers in Colorado advanced similar legislation earlier this month. The Colorado House of Representatives passed the Swipe Fee Fairness and Consumer Safeguards Act, sending the measure to the governor for consideration. If enacted, Colorado's measure would prohibit price collusion between payment card networks and banks, require transparent fee schedules and ban swipe fees on taxes.