WASHINGTON—What will be the impact of a federal judge largely upholding the Illinois’ Interchange Fee Prohibition Act (IFPA)?
America’s Credit Unions Federal Regulatory Compliance Counsel Amanda Smith, in a Compliance Blog post, outlined background on the bill, the legal challenge headed by America’s Credit Unions, the Illinois Credit Union League, the Illinois Bankers Association, and the American Bankers Association, and what the decision means for credit unions.
“This decision results in a number of significant compliance challenges for credit unions across the country,” noted Smith. “Any member from any credit union who uses their card in the state of Illinois subjects that credit union to compliance requirements.”
Smith explained the decision results in a number of significant compliance challenges for credit unions across the country.
“Any member from any credit union who uses their card in the state of Illinois subjects that credit union to compliance requirements. Even a traveler grabbing lunch or a souvenir on a layover may incur charges that need to be split between purchase and sales tax,” she said, outlining more issues:
- “The process would start with Card Networks implementing new specifications, which take significant time and resources to develop. Issuers and Acquirers would then have to adopt those specifications at significant cost. Merchants, too, would likely have to purchase new point-of-sale terminals and new software to run them.
- “Financial institutions of all sizes will have to track state and local sales taxes on purchases that take place in Illinois, plus excise taxes such as a gas tax that is built into the price of fuel, rather than charged separately.
- “Financial institutions will need to develop procedures, hire new staff, and train existing employees to receive, evaluate, and audit the documentation they may receive from the immense number of merchants.
- “The IFPA may be implemented by merchants requesting refunds for the interchange fees charged on taxes and tips. Merchants will have to bear expenses associated with obtaining new point-of-sale terminals and new software to run programs that separate the taxes and tips from the product.
Smith added that ACU and the other plaintiffs are appealing the decision as soon as possible and are evaluating their options regarding the impending July 1, 2026, effective date.
“That is less than five months for financial institutions to take all the necessary measures described above to ensure they will be compliant at the deadline,” Smith noted. “A small credit union in Alaska may never have a transaction from Illinois, or it might have several, should it have members that regularly travel to Chicago. The risk will be difficult to estimate.”
Smith pointed out the penalty for errors is $1,000 per transaction.
“A financial institution caught unprepared could rack up tens or even hundreds of thousands of dollars in fines by the time it identifies the transactions,” she explained.
Smith also pointed out many other states have proposed or introduced similar laws.
“Illinois’ success in defending this law may embolden them to move that legislation forward. It is possible that the burden of compliance with this and potentially other laws will cause a chaos that prompts the U.S. Congress to step in. One associated concern is that Congressional action could cap credit interchange similar to debit interchange,” concluded Smith.