CHICAGO—A federal judge Monday permanently blocked Illinois from enforcing key portions of its Interchange Fee Prohibition Act against national banks and payment card networks, a major development in the legal fight over the first-of-its-kind swipe-fee law, but one that still leaves credit unions and Illinois chartered banks without direct court protection from the law’s core interchange-fee restrictions.
Chief U.S. District Judge Virginia Kendall of the Northern District of Illinois granted the plaintiffs’ request for a permanent injunction preventing Illinois from enforcing the IFPA’s interchange-fee limitation against national banks, banks chartered by states other than Illinois that are subject to Riegle-Neal, federal savings associations and payment card networks.
The ruling is significant for the broader payments system because it protects payment card networks from enforcement of the law’s ban on collecting interchange fees on the tax and gratuity portions of card transactions. That matters because the court again recognized that networks such as Visa and Mastercard—not individual financial institutions—set and calculate interchange fees, and that the OCC’s revised rule now directly accounts for national banks receiving fees through third parties, networks and similar arrangements.
Kendall said the OCC’s actions do not change the court’s earlier analysis regarding the IFPA’s interchange fee limitation as applied to federal credit unions, savings associations or savings banks chartered by states other than Illinois. The court specifically stated that its determination that the interchange-fee limitation is not preempted as to other entities, including federal credit unions, remains in place.
CUToday.info previously reported that America’s Credit Unions, the Illinois Credit Union League, the American Bankers Association and the Illinois Bankers Association had urged the courts to permanently block the law, arguing that the IFPA conflicts with federal law and threatens the national payments system.
The decision comes the same day CUToday.info reported the Illinois General Assembly approved legislation delaying implementation of the IFPA by one year, pushing the effective date to July 1, 2027, if signed by Gov. J.B. Pritzker. That delay gives credit unions and other financial institutions more time.
The ruling also keeps pressure on NCUA. CUToday.info previously reported that NCUA has moved toward its own preemption rule for federal credit unions after the OCC issued an interim final rule and order asserting that the Illinois law is preempted for national banks and federal savings associations. Credit union advocates have warned that without NCUA action, credit unions could be left at a competitive disadvantage while banks receive clearer federal protection.
The court’s earlier ruling on the IFPA’s data-usage limitation remains intact, meaning that provision is preempted or invalid as applied to national banks, out-of-state banks, federal savings associations, federal credit unions and other entities, including payment networks and processors, when they are carrying out functions that facilitate those institutions’ powers.
Under the decision, federal credit unions remain protected from the IFPA’s data-usage restrictions, but not from the interchange-fee limitation itself under the court’s analysis. That makes the pending NCUA preemption effort, the likely appeal and the Illinois delay legislation central to what happens next.
Co-plaintiffs the American Bankers Association, Illinois Bankers Association, America’s Credit Unions and Illinois Credit Union League issued a joint statement “welcoming” the ruling, “Which recognizes that federal law protects critical elements of the national payments system from conflicting state requirements. The court appropriately concluded that the Interchange Fee Prohibition Act cannot be applied to national banks, federal savings associations, payment networks as well as certain other financial services providers because it is preempted by federal law. The decision will spare millions of Illinois businesses and citizens from payment chaos.”
The groups stated the decision is an important step toward preserving a consistent, nationwide framework for electronic payments.
“At the same time, it does not fully resolve the challenges created by this law. Even with this decision, credit unions and Illinois-chartered banks remain subject to IFPA, creating ongoing uncertainty and the risk of inconsistent treatment for parties in the same transaction,” they said. “Electronic payments rely on a highly interconnected network that requires a uniform national standard. We will continue working through the courts and with policymakers to ensure that all participants in the payments system are treated consistently, so the customers they serve will also be protected from the harm IFPA will cause. We look forward to the 7th Circuit's review of this misguided law."
Scott Simpson
America’s Credit Unions’ President/CEO Scott Simpson stated the ruling was expected and stems from the OCC's recent action that applies to banks, not credit unions.
“While it does not change the current status of credit unions under the IFPA, we remain encouraged by ongoing efforts to address the law’s significant operational challenges,” he said. “We are awaiting the NCUA’s rulemaking on preemption and will continue working with our partners at the Illinois Credit Union League to ensure credit unions receive the same clarity and protections afforded to other financial institutions in the payments system.”-
DCUC Disappointed In Ruling
The Defense Credit Union Council said it is disappointed the court declined to extend federal preemption protections to federal credit unions.
“Credit unions and banks operate on the same payment networks, process the same transactions, and serve many of the same consumers,” said DCUC Chief Advocacy Officer Jason Stverak. “There is no sound public policy justification for creating an uneven regulatory framework that subjects credit unions to requirements from which other federally regulated financial institutions have been exempted.”
Jason Stverak
Stverak pointed out defense credit unions serve millions of servicemembers, veterans, and military families across the country. Policies that increase operational complexity, compliance costs, and legal uncertainty ultimately impact the financial institutions that Americans in uniform rely upon every day.
“While we appreciate the court’s recognition that the law’s data usage provisions are preempted as applied to federal credit unions, we remain concerned that the ruling leaves credit unions exposed to a patchwork of state interchange regulations that threaten the efficiency, security, and uniformity of the nation’s electronic payments system,” he said, adding DCUC encourages Governor Pritzker to sign the one-year moratorium on the bill passed by the Illinois legislature early Monday morning as soon as possible.
“DCUC will continue to work with industry partners, policymakers, and regulators to ensure that federal credit unions receive the same treatment and protections afforded to other federally regulated financial institutions,” Stverak said.