Illinois' pioneering swipe fee law survives first legal challenge

A federal judge upholds the state's ban on credit card companies charging fees on tips and taxes, but opponents vow to appeal.

Published on Feb. 12, 2026

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A federal judge has upheld Illinois' first-in-the-nation law banning banks and credit card companies from charging 'swipe fees' on the tip and tax portions of credit and debit card transactions. The Interchange Fee Prohibition Act (IFPA) faced a legal challenge from financial institutions, but U.S. District Judge Virginia Kendall ruled that the law can move forward, creating a tight timeline for businesses to comply by the July 1, 2026 deadline. The law's supporters, including the Illinois Retail Merchants Association, say it will save businesses and consumers millions in fees, while opponents argue it will create compliance headaches and limit payment options for small businesses.

Why it matters

The IFPA law is seen as a major victory for retailers and consumers over the powerful banking and credit card industry. If upheld, it could serve as a model for other states looking to rein in swipe fees, which can eat up a significant portion of a business's profits. However, the banking industry has vowed to continue fighting the law, arguing it will disrupt payment systems and lead to higher costs for small businesses.

The details

The IFPA law was folded into Illinois' Fiscal Year 2024 budget as a way to offset losses for retailers after the state capped an existing tax discount. Financial institutions, including the Illinois Bankers Association and Illinois Credit Union League, filed a lawsuit arguing the law would create an overly complex payments system. However, Judge Kendall ruled that while the law presents 'complicated compliance challenges,' businesses must still comply, even if it proves 'overwhelmingly arduous' for financial institutions. The judge did side with the banks on one issue, ruling that a provision restricting data sharing was preempted by federal law.

  • The IFPA law was passed in 2023 and was originally set to take effect on July 1, 2025, but the implementation was pushed back a year to allow time for the legal dispute to be resolved.
  • On February 12, 2026, U.S. District Judge Virginia Kendall upheld the IFPA law, creating a tight timeframe for Illinois businesses to set up compliance processes ahead of the July 1, 2026 deadline.

The players

Illinois Bankers Association

A trade group representing banks in Illinois that filed a lawsuit challenging the IFPA law.

Illinois Credit Union League

A trade group representing credit unions in Illinois that joined the lawsuit against the IFPA law.

Illinois Retail Merchants Association

A trade group representing retailers in Illinois that cheered the judge's ruling upholding the IFPA law.

National Restaurant Association

A national trade group that also praised the court's decision to uphold the IFPA law.

U.S. District Judge Virginia Kendall

The federal judge who ruled in favor of the IFPA law, acknowledging the compliance challenges it presents but ultimately deciding businesses must still comply.

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What they’re saying

“Today's ruling is a historic win for Main Street over Wall Street and will save businesses and consumers millions of dollars a year. As the first law in the nation to restrict onerous swipe fees, we hope this measure can serve as a model for other states to seek relief for businesses and working families struggling with higher costs.”

— Rob Karr, President and CEO, Illinois Retail Merchants Association (Statement)

“In light of this outcome, we renew our call for state lawmakers to repeal this flawed law before it can do any more harm to the Illinois economy. The fight over IFPA and any similar proposal will continue.”

— Illinois Bankers Association and Illinois Credit Union League (Joint statement)

What’s next

The Illinois Bankers Association and Illinois Credit Union League have announced they will file an appeal of the judge's ruling in the coming days, continuing the legal battle over the IFPA law.

The takeaway

The IFPA law's survival of this first legal challenge is a significant victory for retailers and consumers in Illinois, but the banking industry has vowed to keep fighting the measure. The outcome in Illinois could serve as a model for other states looking to rein in swipe fees, though the compliance challenges and potential economic impacts remain points of contention.