Originally published at dcjournal.com on May 27, 2026.
For millions of Americans, the credit cards in their wallets are a financial engine. Whether it’s racking up points for family summer vacations, earning cash back on groceries or managing monthly cash flow, these instruments have become a staple in the symphony of modern household budgeting.
Summer is right around the corner, and that financial engine is under attack. Legislatures nationwide have been pushing bills to cap interchange fees. This is the nominal fee of 2 percent to 3 percent that retailers and merchants pay on each credit card transaction, facilitating the secure transfer of funds.
Originally published at dcjournal.com on May 27, 2026.
Research from PYMNTS Intelligence reveals that 86 percent of interchange fee income is allocated directly to funding rewards programs. Cardholders everywhere are the beneficiaries of the underlying payment infrastructure. State initiatives to cap these fees are threatening the $35 billion in rewards value that banks generated for consumers in 2019. If left unchecked, this would dismantle these financial perks. These credit card rewards programs have become a vital tool for Americans facing an inflationary economic environment.
Under the threat of state bans on these fees, the system could grind to a screeching halt. The result? Rewards programs vanish.
The antagonist is the Illinois Interchange Fee Prohibition Act of 2024. The trend is spreading. Colorado passed similar legislation, which is heading to the governor’s desk, hitting replay on the spat in Illinois. The law prohibits card issuers and payment networks from charging interchange fees on the sales tax and tip portions of credit and debit card transactions.
The problem is that modern payment systems do not process taxes or tips separately during authorization and settlement. At the terminal, the transaction is transmitted as a single amount. Illinois lawmakers understood this. The result is effectively a poison pill that is so operationally burdensome that it threatens the viability of collecting interchange fees altogether, amounting to a de facto interchange fee ban.
These laws are already preempted. The Dormant Commerce Clause prohibits states from imposing undue burdens on interstate commerce. Mandating price controls on a nationwide payment network is a direct way for states to antagonize the clause.
At the same time, the similarity of these legislative efforts across 20 jurisdictions could constitute an unauthorized interstate compact, triggering the Compact Clause. This encroachment upon federal supremacy and circumvention of congressional approval is a surefire way to attract preemptive federal blowback.
But wait, there’s more! The Supreme Court’s Barnett Bank standard established that states cannot significantly interfere with the powers of national banks. These piecemeal state mandates promise to do that. Allowing this fragmented patchwork to persist would not only jeopardize the $9 trillion in annual transactions that power our economy but would also dismantle the $35 billion in rewards programs that millions of American households rely on to offset the growing affordability crisis.
These maneuvers are a clever way for legislators to appear “pro-consumer” by helping small businesses lower costs, but they’ll undoubtedly trigger a reward recession. History remembers the 2010 Durbin Amendment, in which interchange fee restrictions on debit cards led to the widespread elimination of debit rewards and the rise of monthly banking fees. The Federal Reserve Bank of Richmond debunked the “pro-consumer” narrative: the vast majority of those savings were never passed on to shoppers.
Here’s the good news. The federal government is finally bringing much-needed order to the chaos. The Office of the Comptroller of the Currency issued a rule explicitly preempting Illinois’ attempt to ban interchange fees on sales tax and tips. This action applies to national banks and federal savings associations. The OCC’s intervention protects the integrity of the U.S. financial system by subverting the fragmented approach.
The OCC’s rule is a common-sense step to ensure that the U.S. economy remains functional. If we allow political theater and false narratives to dictate how our payments infrastructure operates, it’s not just the banks that will pay the price — it’s every American who swipes a card at the gas pump.
It is time for policymakers to stop experimenting with our reward programs and start focusing on policies that actually support consumer financial freedom.