Illinois Delays Its Card-Swipe-Fee Law Again — to 2027. Here’s Why Every State Watching It Should Care
Illinois pushed its Interchange Fee Prohibition Act to July 2027 after a second delay and ongoing federal litigation. What it means for merchants everywhere.
Illinois has pushed back its first-in-the-nation law banning interchange fees on the tax and tip portion of card transactions for the second time, moving the effective date to July 1, 2027. The delay, tucked into Senate Bill 3645, comes amid an unresolved federal court fight over whether the state even has the authority to enforce parts of the law — and it’s a preview of the messy rollout every other state considering similar rules should expect.
The Illinois Interchange Fee Prohibition Act was originally supposed to take effect July 1, 2025. Lawmakers delayed it once to July 1, 2026, and have now delayed it again to July 1, 2027 via Senate Bill 3645, which passed the General Assembly in May 2026.1 The law would bar card networks and issuing banks from collecting interchange fees on the sales-tax and tip portions of a transaction — fees that currently get charged on the full total, tax and tip included.
The delay follows genuine implementation confusion: most point-of-sale and payment-processing systems aren’t built to strip tax and tip out of a transaction total before calculating interchange, so processors and merchants alike said they had no clear, workable way to comply on the original timeline. Separately, the law has been tangled in federal litigation, including a fight over whether the Office of the Comptroller of the Currency’s preemption rule shields national banks from the state requirement — a legal question that could still reshape or gut parts of the law before 2027 arrives.2
Why it matters
Illinois was the test case other states were watching before writing their own interchange-fee rules. A law this contested, delayed twice and still fighting through federal court three years after it first passed, is a signal that “ban swipe fees on tax and tips” is much harder to actually implement than it is to legislate — for both the state and the processors that would have to build the systems to comply.
What this means for small business owners
Even if you don’t operate in Illinois, this is worth tracking if your business processes card payments anywhere:
Don’t build for a 2026 deadline that no longer exists. If you saw this law and started planning point-of-sale changes for July 2026, that work isn’t urgent anymore — the effective date is now July 2027, and even that could move again.
Expect more states to try this, and expect the same friction. Interchange fees on tax and tip are a real cost for merchants, especially in high-tip industries like restaurants and salons, so more states are likely to propose similar rules. Illinois’s stumbling rollout is a preview of the technical and legal hurdles they’ll hit too.
If you operate in Illinois, watch for the next delay or court ruling rather than assuming 2027 is final — this law has already moved twice and remains under federal challenge.
Talk to your POS and payment processor now about whether their systems can even separate tax/tip from transaction totals for interchange purposes — that capability gap is the practical reason this law keeps slipping, and it’s worth knowing where your own vendor stands before any version of this rule does take effect somewhere you operate.
The bottom line
Illinois’s interchange-fee law is now a 2027 problem, not a 2026 one — but the underlying push to regulate card-swipe fees on tax and tips isn’t going away. Small business owners, especially in tipped industries, should treat this as an early warning of where state-level payments regulation is headed, not a settled question anywhere yet.
