An Illinois law designed to prohibit credit and debit card companies from charging interchange, or “swipe,” fees on the tax and tip portions of transactions faces an uncertain future after a federal judge issued a permanent injunction blocking key portions of the measure.
U.S. District Judge Virginia Kendall’s ruling came shortly after Illinois lawmakers approved legislation delaying implementation of the Interchange Fee Prohibition Act (IFPA) for another year, pushing its effective date to July 1, 2027, pending Gov. JB Pritzker’s approval.
The law, backed by the Illinois Retail Merchants Association, would prevent financial institutions from applying interchange fees to sales taxes and gratuities. Retailers argue the change would reduce costs, while banks and payment processors contend it could disrupt the electronic payment system.
Kendall initially ruled earlier this year that the law could take effect. However, after federal regulators revised banking rules and explicitly stated the Illinois law conflicts with federal regulations, the judge reversed course and determined the state law is preempted for national banks, federal savings associations, payment networks, and out-of-state banks.
Supporters of the law argue financial institutions have had ample time to adapt, while opponents maintain current payment systems cannot easily separate taxes and tips from the rest of a transaction.
The ruling is expected to face further legal challenges as both retailers and financial institutions continue their fight over the measure, which could affect an estimated $120 million to $200 million in annual fee revenue.
Despite the injunction, the broader legal battle over Illinois’ swipe fee law is likely far from over.