CHICAGO— To the “deep disappointment” of credit unions and banks, a federal judge has upheld a central part of Illinois’ novel Interchange Fee Prohibition Act(IFPA), clearing the way for the state’s first-in-the-nation ban on certain credit and debit card “swipe fees” to take effect July 1, despite legal challenges from financial industry groups.
In a 47-page opinion, U.S. District Court Judge Virginia M. Kendall of the Northern District of Illinois denied a bid by banks, credit unions and trade associations to block enforcement of the portion of the law that bars issuers from collecting interchange fees on the tax and gratuity portions of card transactions, according to Bloomberg Law. The decision means that the provision of the IFPA targeting those fees will move forward as scheduled this summer, the report added.
Judge Kendall struck down a portion of the law that would have limited how the payment-related data can be used, saying the provision was preempted by federal banking rules, Bloomberg Law reported.
‘Cannot Let This Stand’
The co-plaintiffs in the lawsuit– American Bankers Association, Illinois Bankers Association,America’s Credit Unions and the Illinois Credit Union League issued a joint statement in response to the ruling: “We are deeply disappointed by today’s ruling, and given the July 1 implementation date of the Illinois Interchange Fee Prohibition Act, we will appeal this decision. As the co-plaintiffs demonstrated and the OCC agreed, IFPA is clearly and fully preempted by federal law. The decision not to protect the payment system from this misguided state law is a serious error that will unleash chaos and confusion on Illinois consumers and businesses. We cannot let that stand.
“In light of this outcome, we renew our call for state lawmakers to repeal this flawed law before it can do any more harm to the Illinois economy. The fight over IFPA and any similar proposal will continue,” the statement added.
DCUC: ‘Deeply Troubling Direction’
Jason Stverak, chief advocacy officer with the Defense Credit Union Council, said in a statement, “Today’s ruling allows Illinois’ interchange statute to proceed as applied to financial institutions, and while we respect the court’s decision, it underscores a deeply troubling policy direction that puts credit unions and the servicemembers, veterans, and military families they serve at a disadvantage.
“Credit unions are not-for-profit, member-owned financial cooperatives that rely on interchange revenue to fund fraud prevention, cybersecurity, rewards programs, and low-cost access to credit,” Stverak continued. “Allowing state-by-state erosion of interchange threatens the very infrastructure that enables credit unions to serve communities, including those on military installations and in underserved areas.”
Stverak said DCUC continues to push for legislation and regulations that “recognizes the unique role credit unions play in serving those who serve our nation and that prevents unintended harm to consumers, small institutions, and national security communities.”
First in Country to Bar Interchange
As the CU Daily has been reporting, the legislation, passed by the Illinois General Assembly in 2024 and delayed by lawmakers until 2026 amid litigation, would make Illinois the first U.S. jurisdiction to bar interchange fees on sales tax and gratuities.
Supporters of the law contend it will help reduce costs for Illinois retailers and, ultimately, consumers by eliminating fees on the tax and tip portions of card transactions. Credit unions and banks and other opponents have countered that payment infrastructure and federal law governing banking and card networks should not be upended by state regulation.
