Illinois’s first-in-the-nation “swipe fee” law has been delayed for at least another year and remains the subject of ongoing litigation, creating continued uncertainty for retailers, restaurants, banks, credit unions, payment processors, and consumers across the state.

The law, formally known as the Interchange Fee Prohibition Act, was passed in 2024 and was designed to prohibit certain financial institutions, payment card networks, and processors from charging or receiving interchange fees on the portions of debit and credit card transactions attributable to sales taxes and gratuities. Interchange fees, commonly referred to as “swipe fees,” are fees charged in connection with debit and credit card transactions and are generally part of the cost businesses pay to accept card payments. Supporters of the law have argued that merchants should not have to pay processing fees on money they do not keep, such as taxes collected for the government or tips intended for employees.

The Act was originally scheduled to take effect on July 1, 2025, before being delayed until July 1, 2026. Senate Bill 3645 further amended the Act’s effective date, delaying implementation of Article 150 of the Interchange Fee Prohibition Act until July 1, 2027. The bill passed both chambers of the Illinois General Assembly on June 1, 2026, with the House approving the measure by a vote of 111-0-1 and the Senate concurring by a vote of 51-3-0.

In addition to the legislative delay, the law suffered a significant setback in federal court. On June 1st, 2026, Chief Judge Virginia M. Kendall of the U.S. District Court for the Northern District of Illinois permanently enjoined Illinois from enforcing the Act’s interchange fee prohibition against national banks, federal savings associations, out-of-state state-chartered banks covered by the Riegle-Neal Act, and payment card networks. The ruling followed action by the Office of the Comptroller of the Currency, which issued an interim final rule and interim final order concluding that federal law preempts the Illinois law as applied to national banks and federal savings associations.

The court’s ruling does not completely eliminate the law, but it does leave its future uncertain. The injunction does not apply equally to every financial institution. Illinois-chartered banks, Illinois-chartered credit unions, and certain other institutions may still face potential compliance questions if the law eventually takes effect. That uneven application has raised concerns that the Act could create a fragmented payment system in which different institutions involved in the same transaction are subject to different rules.

The Act also contains significant penalties. Under the statute, entities that receive tax or gratuity data and violate the interchange fee prohibition may be subject to a civil penalty of $1,000 per electronic payment transaction and may be required to refund the merchant the interchange fee calculated on the tax or gratuity portion of the transaction. The law also restricts the use of certain electronic payment transaction data, although enforcement of that data-use provision has also been challenged and limited through litigation.

Opponents of the law, including banking and payment industry groups, have argued that the Act would interfere with the national electronic payments system and create substantial operational challenges because existing payment systems are generally not designed to separate taxes and tips from the rest of a transaction for purposes of calculating interchange fees. Supporters, including merchant advocates, have maintained that the law would provide relief to businesses that currently pay fees on amounts they do not retain.

For now, the combined effect of the legislative delay and the federal court ruling means that Illinois businesses and financial institutions have additional time before the law’s interchange fee restrictions could take effect. However, the issue is far from resolved. The law remains the subject of continued litigation and regulatory debate, and its ultimate enforceability may depend on further court rulings, federal preemption issues, and possible additional legislative action.

As Illinois continues to navigate the future of the Interchange Fee Prohibition Act, businesses that accept credit and debit card payments should continue monitoring developments closely. The law could have important implications for merchant agreements, payment processing practices, compliance obligations, and the costs