Card Industry On Watch as Illinois Delays Interchange Fee Cap Until 2026

Illinois lawmakers have voted to delay the implementation of a state law that aims to ban banks and payment networks from charging interchange fees on the sales tax and gratuity portions of a credit or debit card transaction.

While the act isn’t directly applicable to many participants in today’s credit card ecosystem, its ramifications stand to impact merchants and credit card issuers across the country.

The Interchange Fee Prohibition Act (IFPA), previously scheduled to go live in Illinois on July 1, 2025, is now set for an effective date of July 1, 2026.

State legislators voted to postpone the law’s implementation by one year amid a legal battle from groups, including the American Bankers Association and the Illinois Bankers Association, that claim the act violates federal statutes.

Parties in opposition to the Interchange Fee Prohibition Act may be pleased to see action taken by lawmakers to delay its implementation, but they’d likely be much happier if the act never saw the light of day.

The Interchange Fee Prohibition Act was previously scheduled to be effective in less than a month.

In December 2024, an Illinois judge partially granted the American Bankers Association’s request for a  preliminary injunction in its challenge of the Interchange Fee Prohibition Act. 

The Electronic Transactions Association issued a statement over the weekend supporting lawmakers’ decision to delay the act’s effective date. Jodie Kelley, the association’s CEO, said in the statement that delaying that act will give the legal system more “time to make its preliminary injunction permanent.”

“We anticipate that the court will strike down the entire statute,” Kelley said. “However, if the court determines that a small portion of the law is not preempted, we expect the Legislature to repeal what remains because it would uniquely disadvantage Illinois state banks and credit unions — a result clearly not intended by the General Assembly or the governor.”

The law is attracting a lot of attention from other parts of the country as Illinois is the first state to pass legislation of this nature. But the Interchange Fee Prohibition Act almost certainly won’t be the last regulation of its kind.

Lawmakers in other states have introduced similar legislation that will enable merchants to avoid paying interchange fees on tips and sales tax. 

While banking groups are united in their opposition to the legislation, other organizations support the act. In a statement expressing its disappointment in the law’s delay, the Illinois Retail Merchants Association said it believes the law will provide relief for businesses that are struggling to afford interchange charges.

Rob Karr, the President and CEO of the Illinois Retail Merchants Association, said in the release that legislators are “taking hundreds of millions of dollars out of the pockets of working families and Main Street businesses and giving it to big banks, credit card companies, and credit card processors.”

Karr said the merchants association remains dedicated to ensuring that the Interchange Fee Prohibition Act doesn’t experience further delays. 

We’ll be closely monitoring this ongoing situation as updates occur.