"The Treasury Department" by Robert Lyle Bolton is licensed under CC BY 2.0
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On May 15th, 2026, Americans for Tax Reform filed a comment letter in support of the Office of the Comptroller of the Currency’s (OCC) decision to issue an order preempting the Illinois Interchange Fee Prohibition Act (IFPA).
The OCC was correct to intervene and use federal preemption powers to stop a state law that would have had far reaching consequences outside Illinois and on payments systems in general.
The Illinois Interchange Fee Prohibition Act would have gone into effect on July 1st of this year barring any federal intervention. The law would prohibit banks and card networks from collecting interchange fees on the tax and gratuity portions of electronic transactions. Under the law, banks would have to remit the non-qualified interchange fees on transactions semiannually following reimbursement requests from merchants. The logistics of the law were impractical to begin with. Payment processors, networks, and banks do not typically record or categorize the amount or proportion of the transaction that is classified as tax or gratuity, making such calculations and determinations infeasible.
Additionally, payment processing systems would have to be re-programmed or otherwise upgraded in order to record such data, the costs of which are estimated to be in the range of tens of millions to hundreds of millions of dollars.
Further complicating the implementation of the law were concerns on how consumers would be impacted. Consumers making transactions in Illinois would have been possibly forced to pay for taxes and tips in the form of check or cash, since the timeline for implementation was far too compressed for payment networks and actors to upgrade their systems and comply with such an overreaching mandate.
Aside from the practical concerns, where the law is concerned, the IFPA clearly infringes on certain powers that are safeguarded under federal jurisdiction. The OCC has clarified in the past that banks are entitled to collecting non-interest fees. State regulation of nationally chartered banks is limited since banks are entitled to powers and privileges granted to them under the National Bank Act, and this principle has subsequently been upheld in several Supreme Court cases, such as Cantero v. Bank of America N.A (2024) which the OCC cited in its preemption order. The National Bank Act empowers federally chartered banks with “all such incidental powers as shall be necessary to carry on the business of banking”. And the OCC has recognized in the past that facilitation of electronic payments falls under that scope. Since interchange fee regulation necessarily detracts from rights banks are endowed with that are covered under federal law, the OCC moved to preempt Illinois’ law.
The OCC should be commended for this move since interchange fee regulation has become a focal point in financial services policy at the state level. Several states have considered enacting laws similar to Illinois. These laws could fragment what is currently a uniform, secure, and functional payment system. OCC preemption is valuable in this case to prevent the emergence of a patchwork of state laws and regulations that could cause harm to the systemic stability and safety of the banking system as the OCC rightly mentions in its preemptive order.
The OCC is warranted to stop overzealous financial regulators from destroying a competitive and functional payment system through unworkable and unfeasible mandates.
The letter can be read here.
