Picture a Saturday dinner in Chicago. The check comes to $80, which includes $7 in sales tax and a $16 tip. Behind the scenes, the card network and the bank that issued your card split a small fee on that whole $80. Illinois passed a law to stop that fee on the $23 of tax and tip. Whether that law reaches your credit union depends on a single fact: the kind of charter it holds.
Whether the Illinois tax-and-tip rule reaches your credit union depends on one fact: whether it holds a federal or a state charter.
What changed and why it matters
The National Credit Union Administration issued an interim final rule titled Preemption, Federal Credit Union Non-Interest Charges and Fees. That link goes to a GAO review summary, not the rule itself. We could not open the Federal Register text, so the exact wording and the effective date are unconfirmed here. The rule responds to an Illinois statute, the Interchange Fee Prohibition Act.
Preemption is the legal principle that federal law can override a conflicting state law. According to ABA Banking Journal reporting, the NCUA's position is that federal law governs these charges for federal credit unions. The stated aim is to avoid a patchwork of conflicting state requirements. ABA Banking Journal is a trade publication, so readers who want the primary text should look for the rule itself on the NCUA site.
How the Illinois interchange law works
Interchange is a fee paid on card purchases. The merchant's bank pays it to the bank or credit union that issued the card, and the card network sets the rates. It is usually a percentage of the purchase plus a few cents. Merchants bear it, and it is the reason many issuers can fund rewards programs.
The Illinois law does not ban interchange outright. As described by ABA Banking Journal, it bars banks, payment networks and other entities from charging or receiving interchange on the part of a transaction that is tax or gratuity. In the dinner example, the fee could apply to the $50 of food and drink but not the $23 of tax and tip.
For most cardholders this carve-out is small. You never see interchange as a line item on a statement. It settles between the merchant's bank and the issuer. Tax and tip are also a modest slice of most purchases, and a lot of everyday spending, such as groceries, carries little or no tip. The sources do not say how the law or the preemption fight would change any member's fees, rewards or rates. Anyone who tells you it will is guessing.
The sequence of federal and court actions
The Office of the Comptroller of the Currency moved first, issuing interim measures that assert federal preemption of the Illinois law for national banks. Bank trade groups, including the Illinois Bankers Association and the American Bankers Association, sued. An earlier permanent injunction covered national banks, federal savings associations, certain out-of-state banks and payment card networks.
Federal credit unions were not in that first group. The NCUA then issued its rule. After that, a federal court expanded the injunction to cover federal credit unions and cited the NCUA rule. The order was reported as of September 22, 2026.
The picture is still moving. The Defense Credit Union Council has said significant questions remain for credit unions, and its statement refers to a Seventh Circuit decision. The sources we have do not spell out what that appeals court did, so we do not describe it here. Treat any single outcome as provisional.
Federal and state charters, and deposit protection
The charter is the deciding fact. The NCUA is an independent federal agency created by Congress in 1970. It charters and regulates federal credit unions. State-chartered credit unions are created under state law and supervised by state regulators. The injunction and the NCUA rule were described in terms of federal credit unions, so a state-chartered credit union in Illinois should not assume it has the same protection. Reporting indicates the state law is due to take effect next July, according to a statement from state-chartered institutions. The sources do not give the year, so we do not either.
Deposit safety is a separate matter. The NCUA's Share Insurance Fund covers up to $250,000 per account holder at federal credit unions and most state-chartered ones. The interchange fight does not change that limit.
What members can check
Start with the charter. The NCUA offers a public credit union lookup on its website. Search your credit union by name or charter number, and the profile shows whether it is federally chartered or a federally insured state-chartered institution. Your credit union can also tell you directly.
- Look up your credit union on the NCUA lookup and note the charter type.
- Ask whether the institution expects any change to card terms or rewards because of the Illinois law or the injunction.
- Read the current fee schedule and card agreement, and compare it again if you receive a change-in-terms notice.
- Confirm share insurance coverage through the NCUA if you hold more than $250,000.
The CFPB and FTC have not issued consumer guidance on this issue, according to our review. For now, the most reliable source is your credit union's own disclosures. If a notice arrives about card terms, ask what changed and why.
Please seek a professional. This article is general information, not financial, tax or insurance advice. Please seek a licensed financial, tax or insurance professional about your own situation.
