Illinois IFPA Delayed: July 1, 2026 Update

Today, July 1, 2026, was supposed to be the day Illinois merchants finally saw the Interchange Fee Prohibition Act go into effect.

That didn’t happen.

The Illinois Interchange Fee Prohibition Act, commonly referred to as IFPA, has now been delayed for a second time. It was initially pushed from July 1, 2025 to July 1, 2026. But instead of taking effect today, the law has been pushed out another year. 

And at this point, I think calling this a “delay” understates what’s happening. 

• Illinois IFPA did not take effect on July 1, 2026.
• The new effective date has been pushed to July 1, 2027.
• A federal court has already blocked enforcement against many banks and card networks.
• Merchants should not assume IFPA savings are coming anytime soon. 

On paper, IFPA is a merchant-friendly law. It’s an attempt to stop interchange fees from being charged on the tax and tip portions of card transactions. 

That’s a meaningful relief and real savings for restaurants, retailers, hospitality businesses, and other merchants processing a high volume of taxable sales or gratuities. 

But the law is now in limbo. And for merchants trying to understand what happens next: the honest answer is nothing changes today. 

What is the Illinois Interchange Fee Prohibition Act?

The Illinois Interchange Fee Prohibition Act (IFPA) is a first-of-its-kind state law designed to limit how interchange fees are calculated on certain card transactions.

Currently, interchange is calculated on the full transaction amount. So when a customer pays using a credit or debit card, the card networks and issuing banks calculate interchange on the total amount processed (including any sales tax and gratuity). 

IFPA was introduced to change that in Illinois.

The new law is written to prohibit payment card networks, issuers, acquiring banks, and processors from charging or receiving interchange fees on the tax and/or gratuity portion of a transaction. So businesses would see savings on merchant fees. 

How IFPA Would Change Interchange Costs on Tax and Tips

Here’s how the law would work in practice:

• Let’s say a restaurant bill subtotal is $100
• 6.25% state sales tax is assessed (+$6.25 = $106.25)
• Customer tips $18.75 = $125 total
• Only the $100 subtotal is subject to interchange fees

If the interchange on that tax and tip costs 2%, then IFPA would save them $0.50 on this particular transaction. At roughly 200 similar transactions per day, that adds up to about $36,500 in savings on the year. 

You can do the math from here. Higher-volume restaurants doing ~500 daily transactions at this same average ticket value could save over $90k annually if this law ever goes into effect. 

The whole argument behind IFPA is that merchants don’t keep sales tax or tips, so why should they have to pay interchange on money that isn’t really theirs?

It’s a fair question, and it’s one of the reasons why this law attracted so much attention outside of Illinois. 

Why Was the Illinois IFPA Delayed Again?

The official reason is legislative timing. But the practical reason is tied to uncertainty, litigation, and logistics. 

Illinois lawmakers approved another one-year delay at the end of May. The extension was part of Public Act 104-0532, which officially became law on June 26, 2026 (less than a week before IFPA was set to take effect). 

IFPA has been challenged heavily by banks, credit unions, card networks, and payment industry groups. Their argument is that Illinois is trying to regulate national payments systems at the state level, which creates both legal and operational hurdles.

Supporters of the law (including advocates for retailers and restaurants), argue that merchants shouldn’t be forced to pay swipe fees on tax and tips. 

Honestly, both sides have a point.

Merchants definitely have a right to be frustrated about paying interchange fees on tax and tips. Those dollars either remitted to the government or passed through to employees. And interchange is one of the only non-negotiable components of payment processing. It’s unavoidable if customers pay using a card.

But the payments industry is also right in the sense that they can’t just flip a switch to make this happen. Interchange is part of a large ecosystem involving issuers, acquirers, payment gateways, POS systems, card networks, settlement data, and so on. 

What the Federal Court Ruling Means for IFPA

The legislative delay is not the only reason IFPA is in limbo. 

Separately, a federal court issued a permanent injunction blocking Illinois from enforcing IFPA’s interchange fee restrictions against many banks and card networks. 

While this doesn’t repeal the law, it doesn’t make implementation a bit more complicated. Here’s what it means:

• Illinois cannot currently enforce the interchange fee restriction against national banks, certain out-of-state-banks, federal savings associations, and card networks.
• The block remains in place indefinitely, unless a higher court reverses it or the order is modified. 
• Even if the July 1, 2027 effective date holds, the injunction could prevent merchants from seeing significant savings. 

So IFPA shouldn’t just be viewed as “delayed until next year.” In addition to its delay, it’s partially blocked and still has plenty of legal uncertainty. 

That said, it doesn’t mean that the law is fully blocked or killed completely. This definitely hasn’t seen its last day in federal courtrooms. 

Why IFPA Could Set a Precedent Nationwide

IFPA was enacted back in June 2024. So by the time the new July 1, 2027 effective date arrives, the payments industry will have had roughly three years to prepare for some version of this requirement.

So while the logistical concerns are real, it’s also fair to question the industry’s reason for resistance. Are they actually taking steps to implement and hitting roadblocks that require more time? Or are they spending their efforts fighting the courts and hoping for infinite delays?

If Illinois proves that interchange can be removed from the tax and tip portions of a card transaction (even imperfectly), other states will have a model to follow. 

That changes the entire conversation and sets a precedent in other states.

Right now, the payments industry can continue arguing that state-level interchange restriction is too complicated or too difficult to implement within the existing infrastructure. But that argument becomes harder to make if Illinois makes this happen.

Other states would no longer be debating some theoretical policy idea. They’d have an active framework to model it after, and those same financial institutions would already have the logistics in place to implement elsewhere. 

That’s why the fight over IFPA is much better than just interchange on tax and tips in Illinois. It opens the door to varying state-level interchange rules, each with its own definitions, exemptions, reporting requirements, and enforcement. 

Are Other States Proposing Similar Interchange Fee Laws?

Yes, but merchants should be careful not to overstate the trend.

Illinois still remains the first major test case. Other states have introduced or considered similar ideas, but that doesn’t mean these laws are active or closer to becoming active anywhere else across the country.

• Colorado lawmakers passed a bill that would have restricted interchange fees on sales tax (vetoed by Governor Jared Polis in June 2026).
• Delaware is considering a narrower bill (HB 315) focused on prohibiting interchange on tips.
• Rhode Island introduced interchange fee legislation on tax and gratuities.
• Iowa had a proposal focused on excluding certain taxes from interchange fee calculations.

But proposals are not the same as signed laws. And signed laws aren’t the same as implemented laws. Illinois is proving this in real time, as court challenges and federal rulings can cause constant delays.

Though I still think the fact that lawmakers are talking about interchange in this way and attempting to introduce merchant-friendly legislation is important. Because if the use case is successfully proven in Illinois, the floodgates will likely open in other states. 

What This All Means for Merchants

For merchants in Illinois, there is no immediate action required on July 1, 2026.

Nothing is changing. And you shouldn’t expect your processing costs to drop because of IFPA this month. Your processor won’t automatically be crediting you for interchange charges on tax or tips, despite what was potentially promised to you earlier.

If you want to save money on credit card processing fees, you’re going to have to negotiate directly with your processor on their markup. Not on interchange fees that you can’t control. 

There’s also a long-term question that you should keep in mind: if laws like IFPA eventually go into effect, will the banks, networks, or processors try to recover those costs somewhere else?

Payment costs rarely disappear cleanly. When one fee category gets capped, reduced, or restricted, the industry often looks for other ways to preserve their margin.

That could mean new compliance fees, higher network fees, pricing changes, slashing cardholder rewards, or processor-level charges that are harder for merchants to trace to the original source.

So while IFPA may be designed to lower specific costs, merchants still need to keep their eye on the entire statement. 

Final Thoughts

The Illinois Interchange Fee Prohibition Act did not take effect on July 1, 2026. But it’s still worth watching for merchants in Illinois and businesses nationwide.

IFPA is not just an Illinois issue. It’s a test case for whether states can regulate how interchange fees apply to specific parts of a card transaction. 

For merchants, the argument behind IFPA is easy to understand. And you’re right to be excited about the potential for its implementation. But the practical reality is a lot more complicated. IFPA is still a long way from producing savings on any merchant’s statements.

So for now, you need to look for other ways to reduce your savings. 

Focus on what you can control. There are likely thousands of dollars in extra charges hiding elsewhere in your statement right now, totally separate from interchange. Inflated markups, monthly fees, compliance charges, and other processor-imposed charges are all negotiable. 

And you don’t need to wait for new laws to pass or court rulings to get those removed.