FMI Condemns Federal Regulators’ Overriding of Illinois Swipe Fee Law

Why It Matters

The OCC’s preemption threatens a growing trend of state‑driven swipe‑fee caps, potentially preserving high costs for merchants and consumers while limiting state regulatory power.

Key Takeaways

• Illinois law bans swipe fees on state and local taxes
• OCC interim rules override Illinois law and preempt other states
• FMI says move favors banks and harms grocers
• State‑level fee caps face increasing federal resistance

Pulse Analysis

Swipe fees, the small percentages merchants pay on each credit‑card transaction, have become a focal point for policymakers seeking to lower consumer costs. Illinois pioneered this effort with the Interchange Fee Prohibition Act, which prohibits fees on the portion of a sale attributable to state and local taxes and gratuities. The legislation reflects mounting pressure from retailers and consumer advocates who argue that these fees inflate prices and erode profit margins, especially for grocery chains that act as pass‑through agents for government taxes.

The Office of the Comptroller of the Currency’s recent interim final rules represent a decisive federal pushback. By overriding the Illinois statute and barring other states from enacting comparable bans, the OCC aligns with the banking industry’s longstanding opposition to fee caps. This preemptive stance echoes earlier Trump administration signals to block the law, despite the president’s public support for broader credit‑card competition reforms. The regulatory maneuver raises constitutional questions about the balance of power between federal oversight of national banks and state authority to regulate commerce within their borders.

For merchants, the OCC’s action could preserve the status quo of high swipe‑fee expenses, limiting the cost‑savings that Illinois hoped to deliver. Banks and card networks stand to retain record profits generated from these fees, while consumers may continue to face indirect price increases. The controversy also signals to other states contemplating similar legislation that federal preemption remains a potent obstacle, potentially slowing a nationwide movement toward more transparent and competitive payment‑card pricing.