Illinois Interchange Law: $2.3m at Stake, $308m to Comply

The FDIC has put a number on Illinois's interchange law. For the state-chartered banks caught by it, the fees at stake come to $2.28 million a year. Rebuilding their systems to comply would cost $308 million once, and $6.7 million a year after that.

That comparison sits inside a nine-page proposed rule published on 22 September, and it is the clearest public accounting yet of what the first American law against interchange on taxes and tips is actually worth.

What the rule does

The Illinois Interchange Fee Prohibition Act, passed in 2024, does two things. It bars issuers, networks, acquirers and anyone else in a card transaction from charging or receiving interchange on the part of the amount that is tax or gratuity. And it makes it unlawful for anyone other than the merchant to pass on or use the transaction data.

National banks are already out of reach of it. The Comptroller of the Currency issued an interim final order and an interim final rule in April holding that federal law preempts the Illinois provision, and on 1 June a district court granted a permanent injunction stopping Illinois from enforcing it against national banks, federal savings associations, card networks, and banks chartered by other states that are "subject to Riegle-Neal".

Whether that last phrase covers a state bank with no branch in Illinois is exactly what the parties disagreed about. The plaintiffs said the preemption runs to out-of-state state banks generally; the Illinois Attorney General said it reaches only branches physically located in the state.

The FDIC's proposal settles the question its own way: where a host state's law does not apply to a national bank, it would not apply to an out-of-state state bank either, branch or no branch.

Who is actually in scope

There were 3,449 state banks at the end of 2025. The FDIC identifies 3,185 that the Illinois law could reach. The other 264 are already settled: 235 are headquartered in Illinois and have to comply regardless, and 29 have an Illinois branch and are therefore already covered by the injunction.

Inside the 3,185, the agency counts 111 acquirer banks and 3,183 issuers, with overlap. Of the acquirers, three run their own payment systems, five run part of them, and 103 outsource entirely. Of the issuers, 516 issue both credit and debit cards and 2,667 issue debit only.

The cohort is small in money terms. Those banks hold $12.5 billion of credit card balances between them, which the FDIC puts at 0.98% of US household credit card debt. One large issuer that filed a declaration in the litigation holds $215.9 billion on its own, seventeen times the whole affected group.

Where the $308 million comes from

The cost estimates are not the FDIC's own engineering guesses. They come from declarations that acquirer and issuer banks filed with the court: $16 million for an acquirer running its own systems, $8 million for one running part of them, $25 million for an issuer running its own, and $45,000 or $22,500 for an issuer that outsources, depending on whether it issues credit cards as well as debit.

Multiply those through the cohort and the one-time figure is $308 million. The recurring part, $6.7 million a year, is entirely the cost of processing tax documentation by hand, because the law requires a merchant's tax figures to be reconciled before interchange is rebated.

Against that, the fees themselves: $2.214 million on credit card sales tax, $45,382 on debit card sales tax, $21,300 on credit card tips and $436 on debit card tips. Total $2,281,118.

The footnotes

HaiPay recomputed all fourteen printed equations in that section against the results printed beside them. Ten resolve exactly. Four do not, in three places.

Footnote 26 lists the components of the $308 million and uses $1.25 million for a partially-operating issuer bank, where the text a paragraph earlier says $12.5 million. As printed the formula gives $252.1 million, not the $308,368,000 stated; read with the body's figure it gives $308,367,500.

Footnote 46 computes card gratuities at the affected banks and prints results exactly one tenth of what its own multiplication produces. Footnote 47 then applies a rate of 0.005 where the text says 0.05 percent, and prints the answer that 0.0005 gives.

In each case the printed result, not the printed formula, is the number the document carries forward. Correcting the tips line upward would lift the annual transfer from $2.28 million to about $2.48 million. The comparison survives either way.

Why the ratio is the point

A rule whose compliance cost is 135 times the revenue it moves is not really about the revenue. The FDIC says so almost directly: it notes the law carries civil penalties of $1,000 per electronic payment transaction, and that banks may respond by refusing card transactions in Illinois altogether.

That is the live risk for anyone running payments into the state. Not a small loss of interchange, but a set of banks deciding the exposure is not worth the volume.

And Illinois is not alone. The district court recorded that eleven other states have begun pursuing similar legislation since the Act passed.

What this is not

The $2.28 million is an estimate built on assumptions the FDIC states plainly: Illinois's share of card purchases equals its share of GDP, sales tax applies to everything, credit interchange is 2% and debit 0.05%, 55% of tipped-occupation income is tips and 85% of tips go on a card. Change any of those and the number moves.

The cost side rests on declarations filed by litigants with an interest in the outcome, and on confidential supervisory information HaiPay cannot see. The agency also says regulatory data do not identify where card transactions happen or what part of them is tax or tip.

The recomputation above is arithmetic, not a judgement on the policy. HaiPay did not contact the FDIC, the OCC, the Illinois Attorney General or any bank.

What to watch

The comment file. Comments close on 23 November 2026, and the Illinois law takes effect for state banks on 1 July 2027, which leaves the FDIC about seven months to finalise.

Whether any of the eleven other states passes its own version before then.

And whether the corrected footnotes appear in the final rule. They do not change the conclusion, but a cost-benefit analysis that is quoted back in litigation is worth getting right.