Federal Court Backs Illinois Restaurants in Credit Card Fee Dispute

Ruling could lead to lower processing costs for restaurants in the state

Published on Feb. 16, 2026

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A federal judge has ruled in favor of Illinois restaurants in a closely watched dispute over credit card swipe fees, potentially reshaping how processing costs are calculated on restaurant transactions. The ruling clears the way for the state's Interchange Fee Prohibition Act to move forward, which prevents payment networks from charging interchange fees on money restaurants collect for government taxes and employee tips.

Why it matters

For an industry operating on thin margins, the ruling could represent meaningful financial relief for Illinois restaurants. Credit card fees are one of the fastest-growing expense categories in hospitality, and operators argue that charging fees on tax and tip amounts effectively penalizes businesses for money that never becomes revenue.

The details

Under the new law, interchange fees would apply only to the actual cost of the meal and beverages, not the tax portion owed to the state or the gratuities left for staff. For full-service restaurants where tips often represent 15–25 percent of the bill, the difference could be significant over thousands of monthly transactions.

  • The Illinois law is scheduled to take effect on July 1, 2026.
  • Financial institutions and card networks are expected to appeal the decision.

The players

U.S. District Court for the Northern District of Illinois

The federal court that issued the ruling in favor of Illinois restaurants.

Illinois Interchange Fee Prohibition Act

The state law that prevents payment networks from charging interchange fees on money restaurants collect for government taxes and employee tips.

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What’s next

The interchange fee restriction is scheduled to take effect on July 1, 2026, unless further court action delays implementation. Financial institutions and card networks are widely expected to appeal the decision, which could move the issue to higher courts before reaching final resolution.

The takeaway

This ruling highlights the ongoing debate over interchange fees in the restaurant industry, with operators arguing that the current fee structures unfairly penalize businesses. If implemented, the Illinois law could provide meaningful financial relief for restaurants in the state, potentially setting a precedent for similar measures in other states.