CHICAGO — Credit unions are welcoming a ruling by federal judge who has ordered additional proceedings in the ongoing challenge to Illinois’ Interchange Fee Prohibition Act (IFPA) after recent actions by the Office of the Comptroller of the Currency (OCC) altered the legal landscape surrounding the case.
In an order issued Monday, Chief Judge Virginia Kendall of the U.S. District Court for the Northern District of Illinois directed the parties in the lawsuit brought by banking and credit union trade groups against Illinois Attorney General Kwame Raoul to address the impact of the OCC’s recently issued interim final rule and interim final order concerning the IFPA. The ruling follows a remand from the United States Court of Appeals for the Seventh Circuit.
As the CU Daily reported here, the Illinois legislature has voted to delay implementation of the credit union-opposed IFPA by one year to July 1, 2027.
First-in-the-Nation Case
The case centers on Illinois’ first-in-the-nation law barring interchange fees on the tax and gratuity portions of debit and credit card transactions. As the CU Daily has reported, America’s Credit Unions and the Illinois Credit Union Leaguejoined with the American Bankers Association and Illinois Bankers Association in a lawsuit over the law, arguing it is preempted by federal banking laws and would require extensive and costly changes to payment systems.
Groups Respond
Following the ruling the four trade groups issued a joint statement saying, “We welcome today’s ruling, which recognizes that federal law protects critical elements of the national payments system from conflicting state requirements. The court appropriately concluded that the Interchange Fee Prohibition Act cannot be applied to national banks, federal savings associations, payment networks as well as certain other financial services providers because it is preempted by federal law. The decision will spare millions of Illinois businesses and citizens from payment chaos.
“This decision is an important step toward preserving a consistent, nationwide framework for electronic payments. At the same time, it does not fully resolve the challenges created by this law. Even with this decision, credit unions and Illinois-chartered banks remain subject to IFPA, creating ongoing uncertainty and the risk of inconsistent treatment for parties in the same transaction.
“Electronic payments rely on a highly interconnected network that requires a uniform national standard,” the statement continued. “We will continue working through the courts and with policymakers to ensure that all participants in the payments system are treated consistently, so the customers they serve will also be protected from the harm IFPA will cause. We look forward to the 7th Circuit’s review of this misguided law.”
Earlier Rulings
Kendall previously issued a split decision on Feb. 10. She rejected efforts to permanently block the law’s core interchange-fee prohibition, concluding that payment card networks—not banks themselves—set interchange fees. However, she permanently enjoined the law’s data-use restrictions, finding they conflicted with federal authority allowing banks and credit unions to process and use transaction data for activities such as fraud prevention and rewards administration.
As the CU Daily reported, the legal landscape shifted in April when the OCC issued an interim final rule clarifying that national banks may charge and receive non-interest fees, including interchange fees, even when those fees are established by third parties. The OCC also issued an interim final order stating that federal law preempts the Illinois statute as applied to national banks and federal savings associations. Following those actions, the Seventh Circuit vacated portions of the appeal and returned the matter to Kendall for further consideration.
‘Unworkable and Destabilizing’
The OCC said the Illinois law could create a “complex, potentially unworkable, and destabilizing” framework for the nation’s payment card system. The agency’s actions took direct aim at a key element of Kendall’s earlier reasoning that banks do not themselves set interchange fees.
Monday’s order does not resolve the merits of the dispute but sets the stage for Kendall to determine how the OCC’s new rulemaking and preemption order affect her earlier decision and the future enforcement of the Illinois law.
