Reference: Bulletin 2026-17
Official publication: Read the full Bulletin 2026-17 on the agency website
The Office of the Comptroller of the Currency (OCC) has taken a decisive and necessary step in the ongoing tension between state-level consumer protection initiatives and the federal standards governing national banking. By issuing an interim final order regarding the Illinois Interchange Fee Prohibition Act (IFPA), the OCC has signaled its intent to protect the uniform operation of national banks and federal savings associations from state-level interference in the mechanics of electronic payment processing. This development is of critical importance to financial institutions operating within the state of Illinois, as it clarifies the boundaries of state authority in the realm of payment system interchange fees.
Executive Summary
- Definitive Preemption: The OCC has concluded that the National Bank Act and the Home Owners’ Loan Act preempt the Illinois Interchange Fee Prohibition Act as applied to national banks and federal savings associations.
- Compliance Exemption: National banks and federal savings associations are officially declared to be neither subject to nor required to comply with the Illinois law’s restrictions on interchange fees.
- Operational Integrity: The order emphasizes that state laws cannot significantly interfere with the federally authorized powers of national financial institutions, particularly those powers related to the efficient operation of payment systems.
- No Immediate Action Required: Covered institutions are encouraged to maintain their existing fee structures and processing protocols while the OCC evaluates public comments on the order.
- Visitorial Powers Reinforced: The OCC’s action reinforces the principle that national banks are subject to the exclusive supervision of the OCC, shielding them from state-level enforcement of prohibited fee structures.
What the Regulator Issued
On April 24, 2026, the Office of the Comptroller of the Currency issued Bulletin 2026-17, which contains an interim final order regarding the Preemption of the Illinois Interchange Fee Prohibition Act. The Illinois law, which sought to prohibit banks and payment processors from charging interchange fees on the portion of a transaction attributable to sales tax, excise tax, or gratuities, represented a significant departure from standard industry practices. The OCC’s order concludes that such a mandate would require national banks to alter their fundamental operating methods and would impose significant technical and operational burdens that interfere with their federal powers.
The OCC’s determination is grounded in the legal standard for preemption established by the National Bank Act and clarified by the Supreme Court in cases such as Barnett Bank of Marion County, N.A. v. Nelson. Under this standard, state laws are preempted if they “prevent or significantly interfere” with the exercise of a national bank’s powers. The OCC found that the Illinois IFPA’s requirement to bifurcate transaction data at the point of sale to exclude taxes and tips from fee calculations constitutes such an interference. The regulator noted that “National banks and federal savings associations are neither subject to nor required to comply with this state law.”
Who Is Impacted
The primary entities impacted by this interim final order are national banks and federal savings associations (FSAs) that issue credit or debit cards used by consumers at merchants located in Illinois. Additionally, the order has significant implications for third-party payment processors, merchant acquirers, and card networks that facilitate transactions involving these federally chartered institutions. While the order specifically addresses national banks and FSAs, it creates a notable competitive disparity for state-chartered banks in Illinois, which may still be subject to the IFPA unless state parity laws or separate legal challenges provide relief.
Financial institutions must carefully distinguish between their national and state charters when determining their compliance obligations. For national banks, the OCC’s order provides a safe harbor from the Illinois law’s requirements, allowing them to continue charging interchange fees on the total transaction amount without the administrative burden of tax-and-tip filtering. However, the order does not automatically extend to state-chartered institutions, which must look to the Illinois Department of Financial and Professional Regulation (IDFPR) for guidance or rely on litigation by industry trade groups.
Key Dates and Deadlines
The OCC has provided a window for public feedback before the order is finalized. The following timeline is currently in effect:
- Order Issued: April 24, 2026.
- Comment Period: Interested parties may submit comments on all aspects of the interim final order for 30 days following its publication in the Federal Register.
- Effective Date: The order is issued as an interim final order, meaning it is effective immediately while the comment process proceeds.
Practical Action Checklist
- Confirm Charter Status: Verify that your institution operates under a national bank or federal savings association charter to ensure coverage under the OCC’s preemption order.
- Review Illinois Merchant Relationships: Audit existing merchant agreements and processing protocols for transactions originating in Illinois to identify any planned or implemented adjustments for the IFPA.
- Pause IFPA Technical Implementation: For covered institutions, immediately halt any costly technical reconfigurations intended to split transaction data for Illinois-specific interchange fee compliance.
- Update Internal Compliance Manuals: Reflect the OCC’s preemption determination in your regulatory compliance documentation to ensure staff are aware that the Illinois IFPA is not applicable.
- Coordinate with Payment Processors: Notify your processing partners and card networks of your reliance on the OCC’s preemption order to maintain standard interchange fee logic.
- Monitor Federal Register Publication: Track the exact date of publication to ensure timely submission of any comments or data regarding the operational burden of the Illinois law.
- Evaluate Competitive Positioning: Analyze the impact of the order on your competitive standing relative to state-chartered banks that may still be required to comply with the IFPA.
- Preserve Visitorial Power Records: Maintain records of the OCC’s order as a primary defense against any potential state-level inquiries or enforcement actions from Illinois authorities.
- Engage with Trade Associations: Participate in industry-wide discussions to support the OCC’s position during the comment period and monitor for potential litigation against the order.
- Review Disclosure Language: Ensure that any disclosures to cardholders or merchants regarding interchange fees remain accurate and do not inadvertently suggest compliance with the preempted state law.
Open Questions / Watch Items
While the OCC’s order provides significant relief, several unresolved issues remain that compliance officers should monitor closely. The first is the potential for litigation. The State of Illinois or consumer advocacy groups may challenge the OCC’s preemption authority in federal court, arguing that the order exceeds the regulator’s mandate under the Dodd-Frank Act’s specific preemption standards. Any such litigation could create a period of uncertainty if a court issues a stay or overturns the order.
Second, the impact on state-chartered banks remains a point of contention. Many states have “wildcard” or parity laws that allow state banks to exercise the same powers as national banks. It remains to be seen if the Illinois legislature or regulators will allow state-chartered banks to ignore the IFPA under parity principles, or if state banks will be forced to comply, creating a two-tiered banking system in the state. Finally, the industry should watch for similar legislative efforts in other states; the success or failure of the OCC’s preemption in Illinois will likely dictate whether other jurisdictions attempt to regulate interchange fees at the state level.
My Law Tampa publishes this regulatory update to assist financial institutions in navigating the complex intersection of state and federal law. Our focus remains on providing clear, actionable insights for compliance and legal officers managing national and regional operations in an evolving regulatory environment.
This memorandum is provided for informational purposes only. It does not constitute legal advice, and the transmission or receipt of this information does not create an attorney-client relationship between the reader and My Law Tampa. Readers should consult with qualified legal counsel regarding the specific application of these developments to their unique circumstances and charter status.
Source Materials
- Official publication: Bulletin 2026-17
- Regulator archive: OCC memo archive
- Memo library: browse the full regulatory memo archive
- Related memo: OCC Interim Final Rule Clarifies National Bank Authority Over Non-Interest Fees and Interchange
- Related memo: OCC Proposes Deregulatory Streamlining of Public Welfare, CLO Risk Retention, and FSA Nondiscrimination Rules
- Related memo: Community Bank Leverage Ratio Framework: Comprehensive Analysis of the 2026 Final Rule
