Seventh Circuit Hits Reset Button in Illinois Interchange Fee Litigation After OCC “Doubles Down” on Federal Preemption under the National Bank Act

By Alan S. Kaplinsky, Adam Maarec, Ronald K. Vaske, John L. Culhane, Jr. & Richard J. Andreano, Jr. on May 12, 2026

Posted in Litigation and Court Decisions, OCC, Preemption

The U.S. Court of Appeals for the Seventh Circuit issued a highly significant order on May 8, 2026 in the closely watched litigation challenging the Illinois Interchange Fee Prohibition Act (“IFPA”), vacating the district court’s judgment and remanding the case for further proceedings in light of the OCC’s recently issued Interim Final Rule and preemption order.

The appeals arise from litigation brought by the Illinois Bankers Association and others challenging the IFPA, an Illinois statute that prohibits financial institutions, payment card networks, acquirer banks, and processors from charging or receiving interchange fees on the tax and gratuity portions of credit and debit card transactions. The statute has generated intense controversy because of its potential operational and economic impact on the intertwined payments ecosystem and because it raises substantial federal preemption questions under the National Bank Act (“NBA”) and related federal banking laws.

As previously discussed in our recent blog post, the Office of the Comptroller of the Currency recently issued both (1) an Interim Final Rule and (2) a formal order concluding that the IFPA is preempted as applied to national banks and federal savings associations. Those OCC actions were issued against the backdrop of the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo eliminating Chevron deference and substantially reshaping administrative law and judicial review of agency action.

The Seventh Circuit’s May 8 order dramatically changes the procedural posture of the case. Rather than proceeding with oral argument scheduled for May 13, the panel vacated the district court’s judgment in its entirety (including not just the portion that applies to national banks and federal savings associations discussing NBA preemption but also the rest of the opinion that discusses other arguments that apply to other types of entities) remanded the matter to the district court “for appropriate further proceedings.” The panel explained that the OCC’s newly issued Rule and Order “bear[] on the state statute at issue in these appeals” and that the district court should address those developments, and any related issues, before the Seventh Circuit attempts to do so itself.

The order expressly notes the sharply divergent positions advanced by the parties in supplemental appellate briefing:

the plaintiffs and the OCC contend that the OCC’s Rule and Order require judgment in favor of the plaintiffs;
the Illinois Attorney General contends that the Rule and Order are procedurally and substantively invalid; and
Illinois further argues that the OCC actions do not alter the proper merits analysis.

The Seventh Circuit’s decision comes after a significant district court ruling issued earlier this year by Judge Virginia M. Kendall. The district court concluded that portions of the IFPA were likely preempted as applied to national banks and federal savings associations, while declining to extend relief as broadly as the plaintiffs had sought. The court’s analysis relied heavily on the Supreme Court’s National Bank Act preemption jurisprudence, including Barnett Bank of Marion County, N.A. v. Nelson, and attempted to distinguish between entities and activities directly tied to national bank powers and those involving other participants in the payments ecosystem. Both sides appealed aspects of the ruling, resulting in the cross-appeals now before the Seventh Circuit.

The Seventh Circuit’s order is highly consequential for several reasons.

First, the order effectively wipes away the entire district court judgment and requires the district court to reconsider the case in light of the OCC’s formal preemption determinations. That alone is a major development because it places the OCC’s actions squarely at the center of the litigation.

Second, the remand tees up what may become one of the first major post-Loper Bright tests of the degree of judicial respect owed to OCC preemption determinations under the NBA. Although Chevron deference is gone, courts may still regard the OCC’s views as persuasive under traditional principles articulated in cases such as Skidmore v. Swift & Co.. The district court will now likely need to grapple with the following questions including:

whether the OCC complied with procedural requirements in issuing the Interim Final Rule and Order;
whether the OCC properly interpreted the NBA and related preemption standards;
whether the IFPA “significantly interferes” with national bank powers under the framework articulated in Barnett Bank; and
whether different aspects of the IFPA may be preempted as applied to different entities or activities.

Third, the timing pressures in the litigation are becoming increasingly acute because the IFPA is scheduled to take effect on July 1, 2026. As a practical matter, the district court will likely need to proceed on an expedited basis. Any new district court ruling will almost certainly generate another appeal to the Seventh Circuit, and the appellate court presumably would want sufficient time to consider the issues before the statute’s effective date arrives. Indeed, the Seventh Circuit’s order expressly provides that any subsequent appeals “will return to this panel,” suggesting the court anticipates further appellate proceedings in the near future.

The compressed timeline raises another important and unresolved procedural question: whether the district court has authority to postpone or effectively extend the IFPA’s effective date pending completion of the litigation. Federal courts unquestionably possess authority to enter preliminary or permanent injunctive relief barring enforcement of a statute under appropriate circumstances. But a court-ordered delay of a statutory effective date can present distinct remedial and federalism questions because courts generally do not formally rewrite state statutes or amend legislatively enacted effective dates. More commonly, courts temporarily enjoin enforcement while litigation proceeds.

Accordingly, one possibility is that the district court could enter additional interim injunctive relief preventing enforcement of the IFPA pending final resolution of the renewed proceedings and any subsequent appeal. Such relief would likely require renewed analysis of the traditional equitable factors, including likelihood of success on the merits, irreparable harm, balance of harms, and the public interest—issues that may themselves now be heavily influenced by the OCC’s preemption determinations.

The Seventh Circuit’s order also signals that the appellate panel intends to retain close control over the litigation going forward. The panel stated that any subsequent appeals “will return to this panel,” and that supplemental briefing in any future appeal will be limited to issues newly resolved by the district court.

The stakes in the litigation remain extraordinarily high. The IFPA has been viewed by many merchants and state policymakers as a model for potential state-level regulation of interchange fees and card processing economics. Conversely, banks, card networks, and payments industry participants have warned that the law is operationally unworkable and incompatible with nationally integrated payment systems.

The district court proceedings on remand will now likely become one of the earliest and most important tests of how federal banking preemption disputes are litigated in the post-Loper Bright era, particularly where the OCC has issued formal preemption determinations designed to satisfy the procedural and substantive requirements imposed by the Dodd-Frank Act.

Bills are pending or discussions have been had in the following states which prohibit charging an interchange fee on both taxes and tips or taxes only: Rhode Island, S. 2324 (taxes and tips); Colorado, SB 2344 (taxes only); Texas, SB 2026 ( taxes and tips); Iowa, SB 5070 (taxes and tips) ; and Iowa, discussions but no bill yet (taxes only).

We will continue to monitor developments in this case, and other state bills introduced in other states which would prohibit charging interchange fees on tips and/or taxes, very closely.