Illinois Enacts Fines for Credit Card Fees on Tips, Taxes
Illinois fines credit card fee violations on tips and taxes starting 2026.
Why it matters: GCs and businesses in Illinois must adapt to avoid substantial penalties as payment practices change under new regulations.
- Illinois imposes fines for fees on tax and gratuity portions of payments.
- Violators face a $1,000 fine per infraction.
- The law takes effect on July 1, 2026.
- A court ruling upheld the fee prohibition but blocked data restrictions.
Starting July 1, 2026, Illinois will enforce financial penalties against payment processors who levy credit card fees on the tax and gratuity portions of transactions. The Illinois Interchange Fee Prohibition Act imposes a $1,000 fine for every violation, signaling significant financial implications for non-compliance.
This law necessitates urgent compliance adaptations by Illinois-based businesses and their General Counsels (GCs) to avoid penalties. Payment processors must adjust their systems to eliminate prohibited fees, ensuring transactions that include taxes and tips are processed in alignment with the new regulations.
In a partial ruling on February 10, 2026, a U.S. District Court affirmed the state's right to prohibit these fees but halted the enforcement of certain data handling rules, citing concerns of federal preemption. This underscores the ongoing complexity as state laws interact with federal regulations.
Effective compliance requires legal teams to provide proactive guidance and strategies that respond to evolving payment laws, maintaining clients' operational efficiency and minimizing financial exposure.
By the numbers:
- $1,000 — Penalty per violation of the new fee restrictions.
- July 1, 2026 — Date the law takes effect.
What's next: Companies have until July 1, 2026, to adjust their systems for compliance.