Illinois' Pioneering Swipe Fee Law Survives First Legal Challenge

Banks and credit unions vow to appeal ruling upholding new restrictions on credit card fees

Published on Feb. 12, 2026

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A federal judge has upheld Illinois' first-in-the-nation law that prohibits banks and credit card companies from charging swipe fees on tips and taxes. The Interchange Fee Prohibition Act was immediately challenged by banks and credit unions after being passed in late 2024, but U.S. District Judge Virginia Kendall ruled in favor of the law. However, the Illinois Bankers Association and Illinois Credit Union League have announced they will file an appeal in the coming days.

Why it matters

The ruling is a major victory for retailers and consumers in Illinois, who will no longer have to pay swipe fees on the tip and tax portions of credit and debit card transactions. The law aims to save businesses and consumers millions of dollars per year, but banks argue it will create an overly complex payments system and cut into their profit margins.

The details

The Interchange Fee Prohibition Act was folded into Illinois' Fiscal Year 2024 budget as a way to offset losses for retailers after the state capped an existing tax discount. Banks and credit unions challenged the law, arguing it would create an overly burdensome payments system. However, Judge Kendall ruled that while the law presents "complicated compliance challenges," the state has the authority to impose such requirements, even if they prove "overwhelmingly arduous" for financial institutions.

  • The Interchange Fee Prohibition Act was passed in late 2024.
  • The law was immediately challenged by banks and credit unions in a lawsuit filed in late 2024.
  • On February 12, 2026, U.S. District Judge Virginia Kendall upheld the law.
  • The Illinois Bankers Association and Illinois Credit Union League announced they will file an appeal in the coming days.

The players

Illinois Bankers Association

A trade group representing banks in Illinois that filed a lawsuit challenging the Interchange Fee Prohibition Act.

Illinois Credit Union League

A trade group representing credit unions in Illinois that joined the lawsuit against the Interchange Fee Prohibition Act.

U.S. District Judge Virginia Kendall

The federal judge who upheld the Interchange Fee Prohibition Act in her ruling.

Illinois Retail Merchants Association

A trade group representing retailers in Illinois that cheered the ruling upholding the Interchange Fee Prohibition Act.

National Restaurant Association

A trade group representing restaurants that also praised the court's decision to uphold the Illinois law.

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What’s next

The Illinois Bankers Association and Illinois Credit Union League have announced they will file an appeal of the ruling in the coming days, continuing the legal battle over the Interchange Fee Prohibition Act.

The takeaway

The upholding of Illinois' pioneering law restricting credit card swipe fees on tips and taxes represents a major victory for retailers and consumers, but the fight is far from over as banks vow to continue their legal challenge. The outcome in Illinois could serve as a model for other states looking to provide relief to businesses and consumers from these fees.