Merchants sue OCC, NCUA over Illinois law preemption

A group of merchant trade associations filed a pair of legal actions on Nov. 12, 2026, against the Office of the Comptroller of the Currency and the National Credit Union Association for what they labeled "slapdash" efforts and "collusion" over the two agencies' interim rules blocking Illinois' ban on interchange assessments on sales tax and tips.

The OCC regulates large national banks, which include some of the largest issuers of credit and debit cards. The NCUA regulates federal credit unions. Earlier this year, both agencies tried to block the Illinois Interchange Fee Prohibition Act, which passed in 2024 and was set to take effect in July 2026 before state lawmakers punted the effective date to next July.

The agencies imposed interim rules asserting that the law was preempted by the National Bank Act and the Federal Credit Union Act.

The lawsuits were filed in U.S. District Court in Washington, DC. Merchant trade groups signing on to the lawsuit include the National Retail Federation, the Restaurant Law Center, the Illinois Restaurant Association, the Illinois Retail Merchants Association, the National Association of Convenience Stores, the Food Industry Association, the National Grocers Association and the Retail Litigation Center.

'Slapdash' rulemaking

"The interim rule purports to determine that the National Bank Act protects national banks' ability to receive interchange fees established by the card networks, even when those fees are set centrally and non-competitively, by the networks rather than by the banks themselves, are charged to merchants and not bank customers, and are much higher than the amount necessary to compensate banks for their highly profitable credit card practices," the lawsuit against the OCC stated.

The suit asserted that interchange in the United States is 10 times higher than in Europe, and the rates are "ultimately reflected in the prices consumers pay, [leaving them] stuck with the bill for interchange fees while issuing banks receive immense profits." The groups, in a press release said the Illinois law would save merchants and consumers in the state more than $500 million a year.

"At a time when families are watching every dollar they spend, states should be able to protect merchants and consumers from an anti-competitive payment system and its inflated fees," said Monica Welt, president of the Retail Litigation Center.

Ongoing legal tussle

The two lawsuits are the latest litigation over the Illinois law. In February 2026, U.S. District Court Judge Virginia Kendall rejected arguments proffered by banks that the law was preempted by the National Bank Act, since the fees are set by card networks and thus are not subject to banking laws.

Banks appealed that ruling, but while the appeal was being deliberated, the OCC issued an interim rule asserting the NBA preempts state laws from applying to nationally chartered banks even when the banks charge fees set by a third party.

By issuing the rule in "interim final" form rather than as a proposal, and doing so just weeks before the law was set to take effect, rather than following the practice of providing time for comments from affected parties, the OCC "unjustifiably" violated a federal law, the Administrative Procedures Act, which requires notice and comment periods for major rule changes.

The Seventh Circuit Court of Appeals then sent the case back to Kendall, citing the OCC rule. The NCUA issued a similar rule in June contending the Federal Credit Union Act preempted the Illinois law and similar laws from applying to federal credit unions. In September, Kendall expanded her injunction to include those financial institutions as well. In October, Illinois Attorney General Kwame Raoul announced he would appeal both rulings.

The OCC "has a history of favoring financial interests by purporting to preempt state attempts to protect their constituents" the trade groups said in their lawsuit. And the suit cited a number of cases in which courts have overturned the regulator's preemption moves. One decision even stated that "questions have repeatedly been raised about OCC's independence from the banks it oversees."

The lawsuit against the NCUA made similar assertions, calling it, too, "poorly reasoned" and "slapdash." It said nothing in the Federal Credit Union Act preempts the Illinois law and that the agency similarly exceeded its authority and violated federal rulemaking requirements for notice and an opportunity for public comments.

Merchants balk at paying interchange on money they don't keep

Interchange on tax and tips is "particularly unfair" because merchants don't get to keep those funds, the lawsuits stated. And the delay in implementation means merchants and consumers "will be charged hundreds of millions of dollars more" in fees in the meantime.

"Illinois restaurants are working on the thinnest of margins and rising costs aren't giving up," said Sam Toia, president of the Illinois Restaurant Association. "Our legislature passed the Interchange Fee Prohibition Act to give operators a break on swipe fees charged on money that isn't theirs." Toia added, "The OCC and the NCUA's rules took that relief away from the small and independent restaurants that need it most. These businesses and the workers they employ deserve a fighting chance."

"After Illinois' Interchange Fee Prohibition Act was initially upheld in the courts, banks, credit unions, credit card companies and processors attempted an end run around legislators and the courts," said Rob Karr, president of the Illinois Retail Merchants Association. The lawsuits, Karr added, "highlights serious concerns about the actions of federal regulators while reaffirming our commitment to pursue meaningful swipe fee relief for consumers, neighborhood retailers, restaurants and bars struggling with affordability."

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