OCC Asserts Federal Preemption Over Illinois Interchange Fee Law

On April 24, the OCC announced an interim final rule and a related interim final order clarifying national banks’ authority to charge non-interest fees and concluding that federal law preempts the embattled Illinois Interchange Fee Prohibition Act (IFPA). The OCC’s interim final rule and order rely on the National Bank Act and related federal banking statutes governing national bank powers.

The OCC’s rule and order respond to uncertainty created by recent litigation interpreting the IFPA (previously discussed here). In February, Chief Judge Virginia M. Kendall of the U.S. District Court for the Northern District of Illinois enjoined the IFPA’s data usage limitation but allowed the interchange fee restriction to take effect, holding that the restriction did not significantly interfere with national bank powers because payment card networks, rather than banks, establish interchange fee schedules. The case is now on appeal before the Seventh Circuit, where briefing is expected to conclude by May 1 and oral argument is set for May 13, 2026.

In the interim final rule and order, the OCC reaffirmed that national banks may charge non-interest fees, including interchange fees, even when those fees are set in conjunction with third parties such as payment networks. The OCC also concluded that the IFPA is preempted because it interferes with national banks’ exercise of their federally authorized powers. Specifically, the OCC’s rule and order:

• Clarify authority to charge non-interest fees. National banks may assess and receive fees, including interchange fees, as part of their banking powers, regardless of whether those fees are established directly or through third-party arrangements.
• Expand the definition of “charges.” The rule defines charging fees broadly to include assessing, collecting, or otherwise obtaining compensation through various structures, including intermediary relationships.
• Confirm preemption of the IFPA. The interim final order concludes that federal law preempts the IFPA’s restrictions on charging or receiving interchange fees on the tax and gratuity portions of payment-card transactions.
• Address operational and systemic concerns. The agency emphasized that compliance with the IFPA could disrupt payment systems, create significant operational burdens, and expose banks to substantial liability.

Putting It Into Practice: Although the OCC’s rule and order provide relief regarding the IFPA as to national banks and federal savings associations, and could serve as a deterrent to other states attempting to enact legislation similar to the IFPA, litigation to challenge the rule and order is likely. Banks, payment networks, and other market participants should continue monitoring the litigation currently pending in the Seventh Circuit, as well as any future litigation challenging the OCC’s rule and order, in advance of the IFPA’s July 1, 2026 effective date.

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