U.S. District Judge Virginia M. Kendall has put Illinois’ swipe fee crackdown on ice, issuing a permanent injunction on Monday, June 1, 2026, that blocks enforcement of the state’s Interchange Fee Prohibition Act. The law would have barred so-called “swipe fees” from being charged on sales taxes and tips, and many restaurants, bars and small retailers had been counting on it to trim their costs. Instead, with the ruling arriving just weeks before the measure was supposed to kick in, those businesses are back in limbo, even as state lawmakers vote to push the effective date out by another year.
According to ABA Banking Journal, Judge Kendall concluded that a recent move by the federal banking regulator changed the preemption analysis and justified a permanent injunction. Illinois is now barred from enforcing the IFPA’s interchange fee prohibition against national banks, federal savings associations, out-of-state state-chartered banks and payment card networks. The court said the banks had shown they would suffer irreparable harm and that an injunction better balanced the competing interests.
In April, the Office of the Comptroller of the Currency issued an interim final rule and an interim final order concluding that federal law preempts the Illinois statute. The agency described the action as an effort to “clarify longstanding powers” of national banks and prevent operational disruption, according to a Office of the Comptroller of the Currency news release. Judge Kendall said the OCC’s steps played a central role in her analysis, even as the opinion took issue with parts of the agency’s rulemaking process.
The injunction does not extend to federally insured credit unions or Illinois-chartered banks, which leaves portions of the payments system still covered by state law and, according to Payments Dive, sets the stage for more litigation. Banking trade groups that sued the state, including the Illinois Bankers Association and the American Bankers Association, applauded the ruling as a safeguard against conflicting state rules that could splinter the national payments system.
What the ruling means for merchants
For retailers and restaurant owners who had rallied behind the ban, the pause feels like a gut punch. They argue the delay keeps extra costs on the backs of small businesses, while card networks have warned the law would have created technical headaches at the register. As reported by NPR Illinois, the General Assembly voted this week to postpone the IFPA’s effective date to July 1, 2027, and local retail leaders say that move protects banks at the expense of neighborhood shops and eateries.
Where the case goes next
The legal fight is expected to circle back to the Seventh Circuit and could generate multiple appeals, including challenges under the Administrative Procedure Act to the OCC’s rule. As Bloomberg Law notes, the mix of agency action and preemption claims gives both sides several possible routes to keep pressing their arguments.
Legal implications
The decision underscores how federal regulators can effectively decide whether state consumer-protection measures reach national payment networks or federally chartered banks. Payments Dive and other coverage point out that versions of the Illinois approach have surfaced in policy discussions elsewhere, so what happens here could echo well beyond state lines.
A final outcome is likely months away and will hinge on appeals and any challenges to the OCC’s rulemaking. In the meantime, Illinois merchants are staring down at least another year of uncertainty over who ultimately covers swipe fees on taxes and tips.
