WASHINGTON–Among the growing concerns of credit unions following a court ruling upholding the Illinois Interchange Fee Prohibition Act (IFPA) is that it will inspire even more similar legislation in other states.
As the CU Daily reported here, following a judge’s ruling the largely upheld the Illinois Interchange Fee Prohibition Act (IFPA) last week, America’s Credit Unions, the Illinois Credit Union League, the American Bankers Association and the Illinois Bankers Association have now filed an appeal with the U.S Court of Appeals for the Seventh Circuit.
In the 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 law is set to go into effect July 1.
Similar Bills in 22 States
But while that appeal is being pursued, credit unions in other states are likely to find themselves dealing with legislation, said Ann Petros, VP-policy engagement and credit union operations, with America’s Credit Unions.
“One concern that many members and our league partners have now is what this means for other states,” said Petros. “We have already seen 22 states that have introduced or carried over interchange legislation and we anticipate with this (ruling) against preemption applying in Illinois (will) mean that a few more states will introduce legislation in the months to come. That, of course, is worrying because a lot of that legislation is copycat legislation that is almost identical to the (IFPA).”
Petros said a new interchange legislation landscape has developed with what are known as “card chaos bills,” which, in addition to other provisions, remove the banner “all cards agreements” that merchants and payment networks have historically agreed to in which all cards are honored.
Card ‘Chaos’
“That could lead to a situation where consumers don’t know which types of cards are accepted,” Petros said, adding that family owned businesses and small merchants would have to negotiate with card issuers to determine applicable rates, creating confusion for everyone. It could also mean cheaper card routing options for larger merchants over smaller merchants.
While retailers and merchants are supportive of the IFPA due to projections it will reduce their interchange costs, will it not lead to some customer service problems at the point of sale if cards are rejected or other disputes occur? In response to a question from the CU Daily, Greg Mesack, SVP-advocacy with America’s Credit Unions, said the promises the bill’s backers have made to retailers and merchants didn’t also include some of the challenges, such as having to swipe out POS systems and dealing with customers who are unhappy with their transaction options.
Some Positive News
One piece of positive news out of the new ruling is the judge’s support for federal preemption of the data usage provisions of the Illinois law, a reversal of the same judge’s earlier ruling. The law would have restricted the sharing of any data or the transmission of any data for purposes such as fraud monitoring, which Petros noted would have been “hugely problematic”
Petros said the plaintiffs, whom she described as “very disappointed” in the ruling, are now determining their strategy going forward.
