WASHINGTON--Implementation of the Illinois Interchange Fee Prohibition Act will “upend the debit- and credit-card operations” of federally chartered financial institutions and “wreak havoc on the national payment-processing system,” according to a reply brief filed Friday in the U.S. Court of Appeals for the Seventh Circuit.
The brief was filed by America’s Credit Unions, the Illinois Credit Union League, and other organizations in response to the Illinois attorney general’s brief filed earlier this month.
The IFPA would prohibit the collection of interchange on tax and gratuity portions of transactions in Illinois. With the IFPA set to become effective July 1, the brief argues that the appeals court should reverse the district court’s decision on the interchange fee provisions and issue a permanent injunction “to preclude enforcement against both exempt institutions and other payment-system participants that enable exempt institutions to receive or charge interchange on the full transaction amount.”
The brief argues that federal credit unions are protected from such state laws: “As federal instrumentalities, federal credit unions are entitled to exercise their federal powers free from prevention or significant interference by state law.” The brief further explains that although this is an “issue of first impression,” legal precedent and history suggest that federal credit unions should be treated the same as other federal instrumentalities.
The brief also requests the court affirm the district court’s decision that federal law preempts the data usage provisions of the IFPA. Federal law “does not allow Illinois to significantly interfere with federal financial institutions’ operations in this manner,” the brief reads. “Nor does it allow Illinois to subject financial institutions to substantial liability for engaging in routine activities like preventing fraud and administering rewards programs, as the IFPA’s Data Usage Limitation would do.”
America's Credit Unions said it is actively involved in discussions with and seeking support from the NCUA. America's Credit Unions is also speaking with the White House and the Treasury Department about the IFPA and the negative impacts this law could have on credit unions and consumers across the country, stressing the importance of strong preemption authority for credit unions.
Member credit unions nationwide have started tracking Illinois transactions and are recording tens of thousands per month, each of which would have to be separately calculated to exclude tax and gratuity portions.
A recent ACU Compliance Blog entry outlines what the IFPA would mean for credit unions, and America’s Credit Unions’ Resource Library contains additional interchange resources.