Illinois Delays Implementation of Its First in the Nation Interchange Law

Illinois lawmakers extended the implementation date for the Interchange Fee Prohibition Act by 12 months early Sunday to July 1, 2026.

Groups opposing the IFPA, the first law of its kind passed by any state, argued the law would cause “widespread economic disruption” and that it would place an undue burden on merchants, especially small merchants with limited technological resources, to comply with the law.

The IFPA, originally scheduled to go into effect in 29 days, July 1, requires merchants to pay interchange on the pre-tax amount of a purchase and tips. In return, the state will cap what merchants earn for collecting sales tax on its behalf at $1,000 per month. The state pays merchants 1.75% of the sales tax collected per month.

IFPA opponents argue the technology to exempt sales tax and tips on a card transaction from interchange was not in place at the time of passage and that nearly a year later, the technology is still not readily available despite efforts to develop it. Without the technology in place to comply with the IFPA, consumers making card transactions in the state could be forced to pay sales tax or gratuities in cash or by check, resulting in two transactions for a single purchase, IFPA opponents argue.

“It would take a coordinated Herculean effort involving all parties within the payments ecosystem to implement the necessary technology,” says Scott Talbott, executive vice president for Electronic Transactions Association, a Washington, D.C.-based association for the payments industry.

Having delayed implementation of the IFPA, opponents of the law say it would have wide-ranging implications for the entire payments industry. As a result, they plan to push for law to be repealed over the coming 12 months.

“This law will cause widespread economic disruption and mounting evidence shows that the measure overwhelmingly benefits corporate megastores while placing an undue financial burden on small businesses and smaller financial institutions that form the backbone of our local economies,” Ben Jackson, executive vice president of the Illinois Bankers Association, said in a statement. “In the coming months, we will urge the Illinois General Assembly to act in the best interest of their constituents by fully repealing this law.”

Despite the delayed implementation date, legal challenges to the IFPA remain. A hearing is expected later this month on a motion by the plaintiffs urging the court to exempt all parties within the payments ecosystem involved with a credit or debit card transaction from the IFPA, including the card networks and processors, due to the “interconnectivity” of the electronic payments system.

“Credit unions across Illinois appreciate the General Assembly’s recognition of the urgent need for relief from the Interchange Fee Prohibition Act,” Ashley Sharp, senior vice president of State Advocacy and Legislative Counsel for the Illinois Credit Union League, says in a statement. “This misguided policy will negatively impact the consumers we serve, and we will continue our efforts to have this law fully repealed.”

The Illinois Credit Union League and the Illinois Bankers Association were among the plaintiffs legally challenging the law.

In response to the Illinois legislature’s decision to extend the implementation date of the IFPA, the Illinois Retail Merchants Association, which lobbied for passage of the IFPA in 2024, said it remains “committed to ensuring” implementation of the law is not delayed further. 

“We are disappointed the General Assembly is delaying implementation of this law, which would provide historic relief from out-of-control credit card swipe fees for Main Street businesses and consumers,” Rob Karr, president and chief executive of the Illinois Retail Merchants Association says in a statement. “By refusing to require compliance as originally intended, legislators are again taking hundreds of millions of dollars out of the pockets of working families and Main Street businesses and giving it to big banks, credit card companies and credit card processors.”

Prior to the vote to extend implementation of the IFPA, the merchant community reportedly sought to introduce an amendment allowing Illinois merchants to sue any entity within the payment ecosystem attempting to collect interchange on the sales tax and tip portion of card receipts for reimbursement of interchange fees paid on sales tax and tips, effective July 1, 2025. The Illinois legislature reportedly did not consider the legislation.