Protect Your Credit Card Rewards: Stop the Illinois Interchange Fee Act

Illinois Swipe Fee Law Partially Upheld, Battle Continues

February 12, 2026 – A federal court has issued a partial ruling in favor of Illinois in a legal challenge brought by banking industry groups against the state’s first-of-its-kind law regulating interchange fees, commonly known as swipe fees. The Illinois Interchange Fee Prohibition Act (IFPA), enacted by the state legislature, aims to lower costs for merchants, but has drawn fierce opposition from financial institutions and payment networks.

The court upheld most of the IFPA, but struck down the portion of the law concerning the sharing of transaction data, according to a report from the ABA Banking Journal. The ruling, delivered by Chief Judge Virginia Kendall of the Northern District of Illinois, aligns with arguments presented in an amicus brief filed by U.S. Senator Dick Durbin, a key proponent of interchange fee reform.

Senator Durbin, in a statement released February 11, 2026, lauded the decision as “a win for merchants and consumers” who are struggling with rising costs. He emphasized that the law targets “outrageous swipe fees” charged by major Wall Street banks and payment processors like Visa, and Mastercard.

The IFPA specifically creates an exemption for the tax and tip portions of purchases, shielding those amounts from card processing fees. This provision has been a central point of contention, with opponents arguing it will create confusion for consumers and increase costs for small businesses.

Critics of the law, including groups representing convenience stores and large retailers, contend that the IFPA will “completely upend the way your credit and debit cards work,” leading to higher costs and potential disruptions to the payment system. They argue that interchange fees are essential for safeguarding networks, preventing fraud, and funding reward programs.

According to information from Guard Your Card, a consumer advocacy group, interchange fees typically amount to around 2% of each transaction. The IFPA aims to redirect those funds, but opponents warn that businesses may need to invest in new card processing systems to comply with the law, and consumers could be forced to pay taxes and tips separately, potentially with cash or check.

The legal challenge, brought by the Illinois Bankers Association, argued that the IFPA interferes with federal regulations and creates an undue burden on financial institutions. However, the court found that the state law is consistent with the intent of the Durbin Amendment, a 2010 provision of the Dodd-Frank Act that imposed limits on debit card interchange fees.

Senator Durbin’s amicus brief explained that the Durbin Amendment established a ceiling, rather than a uniform standard, for debit interchange fees. The court agreed that the IFPA similarly seeks to reduce excessive fees without imposing an overly rigid structure.

The ruling comes as the debate over interchange fees continues to intensify. Durbin is also sponsoring the Credit Card Competition Act, which would require the largest credit card issuers to offer a choice of at least two networks for processing transactions, potentially increasing competition and lowering fees. Currently, Visa and Mastercard control approximately 85% of the credit card market.

While the court’s decision represents a significant victory for Illinois and advocates for interchange fee reform, the legal battle may not be over. The Illinois Bankers Association could appeal the ruling, and the long-term impact of the IFPA remains to be seen. The law is scheduled to take effect this summer, and its implementation will be closely watched by merchants, consumers, and the financial industry alike.

The implications of the IFPA extend beyond Illinois, as other states consider similar legislation. Thirty-four other states have previously rejected proposals to regulate interchange fees, citing potential negative consequences for commerce. The outcome of the Illinois case could influence future legislative efforts nationwide.