CHICAGO— America’s Credit Unions warned that a new Illinois law restricting interchange fees could disrupt payment systems nationwide, according to a reply brief filed Friday with the U.S. Court of Appeals for the Seventh Circuit.
In the filing, submitted alongside the Illinois Credit Union League and other groups, America’s Credit Unions said implementation of the Illinois Interchange Fee Prohibition Act (IFPA) would “upend the debit- and credit-card operations” of federally chartered financial institutions and “wreak havoc on the national payment-processing system.”
The brief responds to arguments made earlier this month by the Illinois attorney general and comes as the law is scheduled to take effect July 1.
America’s Credit Unions said the IFPA would prohibit financial institutions from collecting interchange fees on the tax and gratuity portions of transactions conducted in Illinois, creating significant operational and compliance challenges.
Call for Reversal
The organization urged the appeals court to:
- Reverse a lower court decision related to the law’s interchange fee provisions.
- Issue a permanent injunction blocking enforcement against federally exempt institutions and payment system participants.
America’s Credit Unions argued that federal credit unions are shielded from such state laws, stating in the brief that, as federal instrumentalities, they are entitled to exercise their powers without “prevention or significant interference” from state regulation.
ACU added that while the case presents an issue of first impression, existing legal precedent supports treating federal credit unions similarly to other federal entities for purposes of preemption.
Court Urged to Uphold Prior Ruling
In addition, America’s Credit Unions asked the court to uphold a lower court ruling that federal law preempts the IFPA’s data usage provisions. The group said those provisions would improperly restrict routine activities such as fraud prevention and rewards program administration, while exposing financial institutions to significant liability.
Beyond the court filing, America’s Credit Unions said it is engaging with regulators and policymakers, including the National Credit Union Administration, the White House and the Treasury Department, to highlight what it described as the law’s potential negative impact on credit unions and consumers nationwide.
The organization emphasized the importance of strong federal preemption authority, arguing that inconsistent state-level requirements could undermine the efficiency of national payment systems.
Tracking Illinois Transactions
According to America’s Credit Unions, credit unions across the country have already begun tracking Illinois-based transactions and are recording tens of thousands each month, each of which would require separate calculations to exclude taxes and gratuities if the law takes effect.
DCUC Urges NCUA to Consider Exempting FCUs
Separately, as the CU Daily reported here, with the Trump administration moving to block enforcement of Illinois’ landmark swipe-fee law against national banks, the Defense Credit Union Council has asked NCUA for clarification on whether federal law also protects credit unions from Illinois’ new interchange restrictions.
