Judge Virginia Kendall’s February 10th, 2026 decision upheld Illinois’s right to impose price controls on interchange fees. However, she permanently enjoined the state from enforcing its data-usage restrictions on national banks and federal savings associations. Kendall’s injunction was extended to payment networks and processors to the extent they’re carrying out functions on behalf of exempt banks, but not when acting independently. She conceded it was a close call. Her ruling disappointed the payments industry, which had hoped to have the Interchange Fee Prohibition Act struck down as preempted by federal law. That would also have forestalled a host of other states assaulting the payments industry with their own interchange price controls. Complying with the IFPA alone will be enormously costly. Facing a nationwide battery of state-specific interchange price controls would bring the payments industry to its knees.
Kendall reasoned that the payment networks, not banks, set interchange fees and that, consequently, laws preempting national banks from much state regulation did not apply. While the ruling is a victory for merchant lobbies keen to eliminate interchange fees brick by brick, it is hardly the last word. The banks and credit unions challenging the IFPA have powerful preemption arguments, and the Seventh Circuit will have reason to hear their appeal and scrutinize the district court’s reasoning.
The OCC called the legislation “ill-conceived, highly unusual and largely unworkable.” It isn’t the first law that’s ill-conceived, but that’s not illegal.
The IFPA is the first state law curbing interchange fees. If it stands, it won’t be the last. It prohibits interchange fees on portions of a transaction attributable to sales tax and gratuities, and restricts the use of transaction‑level data. It was written to appear modest. But it’s an assault on a core pricing mechanism used to balance participation on both sides of the payments system and maximize total value. Interchange revenue compensates issuers for fraud risk and credit losses, and funds grace periods, authorization infrastructure, customer service, risk management, rewards, fee-free accounts, and issuer innovation.
Complying with the IFPA will impose a massive burden on the banks and payment networks worldwide, on payment processors and merchants operating in Illinois, and ultimately on cardholders in terms of payment enhancements deferred or scrapped, and benefits trimmed.
Banks and credit unions filed a notice of appeal with the U.S. Court of Appeals for the Seventh Circuit on February 13, 2026. The substantive appeal itself—the opening appellate brief containing the detailed legal arguments outlining exactly why the district court’s decision should be overturned—has not yet been submitted. It is likely to center on federal preemption, where their arguments are strongest. National banks derive their powers from the National Bank Act, and state laws that “prevent or significantly interfere” with those powers are preempted. They reiterate what their complaint made clear, that the IFPA does exactly that: it restricts the fees national banks may charge for card transactions and limits their ability to use transaction data for fraud detection, reconciliation, and compliance functions—activities squarely within federally granted banking powers.
The same logic applies to federal savings associations under HOLA and to federal credit unions under the FCUA. Each regime provides a uniform national framework precisely to avoid a patchwork of state‑level restrictions on core financial operations. The Prairie State’s own parity statutes extend those preemption protections to Illinois‑chartered institutions, meaning the state cannot selectively burden out‑of‑state banks or credit unions without running afoul of the dormant Commerce Clause. The plaintiffs will argue that Kendall gave insufficient weight to these structural constraints.
A second promising appellate focus will be the IFPA’s extraterritorial effect. Payments are routed through global networks; interchange, typically, is set at the network level; and issuers operate across state lines. A single state dictating the permissible components of interchange fees imposes operational and compliance burdens far beyond its borders. The dormant Commerce Clause has long been hostile to such state‑level attempts to regulate interstate financial flows.
Finally, the plaintiffs probably will emphasize the statute’s operational difficulty. Covered interoperating bank issuers, payment networks, and processors can’t easily capture and separately price sales tax and gratuities at the transaction level. Nor can they selectively suppress data flows without weakening fraud controls. Kendall’s ruling, by accepting Illinois’s assertion that these burdens are manageable, at least invites appellate scrutiny of whether the court adequately considered the technical realities of payment processing. The enormous cost burden of complying with the IFPA is real and a strong political argument for its repeal. The legislation, however, is indifferent to the financial havoc it creates.
While Illinois and foes of payment fees won the first round, the challengers’ preemption and constitutional arguments remain formidable. The Seventh Circuit will now decide whether one state may rewrite the economics and data architecture of the national card‑payments system.
The payments industry should not solely rely on the courts. State legislators need to be educated to the value that the industry delivers and reminded that market prices best allocate resources. But they also need to feel the heat. They need to pay a political price for supporting bad policy.
