Illinois Interchange Fee Prohibition Act
Illinois Bankers Association v. Kwame Raoul, in his official capacity as Illinois attorney general
Date: Oct. 11, 2024
Issue: Whether the Illinois Interchange Prohibition Act (IFPA) is preempted by the National Bank Act (NBA), Home Owners’ Loan Act (HOLA), Federal Credit Union Act (FCUA), and Electronic Fund Transfer Act (EFTA).
Case Summary: Several developments have occurred in the American Bankers Association’s lawsuit challenging the IFPA.
As background, on June 7, 2024, the state of Illinois enacted the IFPA, banning banks, payment card networks, and other entities involved in processing debit or credit card transactions from charging or receiving “interchange fees” in Illinois on the portion of a transaction attributable to taxes or gratuities (the Interchange Fee Prohibition). ABA and its co-plaintiffs sued Kwame Raoul in his official capacity as Illinois attorney general and moved for a preliminary injunction challenging the IFPA. In the complaint, the trade groups argued NBA, HOLA, and FCUA preempt the IFPA, and the IFPA conflicts with the EFTA. In its motion for a preliminary injunction, ABA further advanced its preemption arguments and argued it would likely succeed on the merits, and its members would suffer irreparable harm absent a preliminary injunction.
OCC amicus brief. On Oct.22, 2024, the Office of the Comptroller of the Currency (OCC) filed an amicus brief urging the court to grant a preliminary injunction. OCC argued the IFPA’s restrictions on interchange fees and data usage significantly interfere with national banks’ federally authorized powers under the NBA to process debit and credit card transactions and charge fees for those services. OCC emphasized the IFPA’s prohibition on charging interchange fees on tax and gratuity portions of transactions and its limitations on using transaction data would impose operational burdens on national banks and could disrupt the national payment system. OCC contended that such state-level restrictions could increase costs, reduce services, and weaken consumer fraud protection, ultimately fragmenting the nationwide payments system.
Reply in support of preliminary injunction. On Oct. 4, 2024, the Illinois AG filed a combined motion in opposition to ABA’s motion for a preliminary injunction and motion to dismiss. The Illinois AG argued: ABA has no right to sue because the legislature did not authorize the Illinois AG to enforce the limit on interchange fees; Illinois’ sovereign immunity from litigation bars ABA from challenging the Illinois law in federal court; a preliminary injunction is not required because banks need to prepare for the interchange law to take effect on July 1, 2025; and the NBA does not preempt the state law because the law does not meaningfully interfere with the ability of national banks to receive fees or process card transactions.
In response, ABA filed a reply brief on Oct. 11, 2024, arguing its claims are likely to succeed on the merits because the Illinois AG’s threshold arguments are misguided. ABA noted the Ex Parte Young exception applies to ABA’s federal claims. The Ex Parte Young exception allows private citizens to sue state officials in federal courts despite the state’s sovereign immunity. Due to this, Ex Pare Young permits ABA to seek prospective injunctive relief against a state official with the authority to enforce the statute in question. Moreover, the Illinois AG can waive sovereign immunity to avoid forcing Illinois-chartered banks into needlessly complicated proceedings. Additionally, ABA claimed it has standing to bring a pre-enforcement challenge to the IFPA and data usage limitation. ABA also contended the Illinois AG’s speculation claiming ABA’s members will still prepare even with a preliminary injunction turns Rule 65 of the Federal Rules of Civil Procedure on its head. Under Rule 65, courts routinely grant preliminary equitable relief where complying with a new law] during the pendency of litigation would require parties to incur substantial nonrecoverable costs.”
Next, ABA argued the Illinois AG’s merits arguments are baseless, reiterating the NBA, HOLA, FCUA, and EFTA preempt the IFPA. In each instance, ABA noted the IFPA significantly interferes with banks’ exercise of their federally granted powers. ABA also refuted the Illinois AG’s claim that, even if federal law bars Illinois from forbidding federally charted entities from receiving interchange fees on tax and gratuity, the state can still receive interchange fees from third parties like card networks. ABA contended this is not how preemption works, nor is it the way injunctions work.
Opposition to motion to intervene. On Oct. 4, 2024, several retail associations moved to intervene in the lawsuit, arguing the court should allow the proposed intervenors to intervene or file an amicus brief. In its opposition brief, ABA argued Illinois AG’s defense of the IFPA bars the intervention because courts in the Seventh Circuit generally recognize that permissive intervention is unwarranted when the government adequately represents the proposed intervenor’s interests. ABA also argued the retail associations cannot intervene because they failed to satisfy Federal Rules of Civil Procedure 24(b)-(c), which requires the proposed intervenor to plead a claim or defense that differs from the defense. which mandates “a motion to intervene, whether permissive or required, must be accompanied by a pleading that sets out the claim or defense for which intervention is sought.” Rather than comply with Rule 24(c) by attaching “a pleading that sets out the claim or defense for which intervention is sought,” the retail associations filed a brief opposing ABA’s motion for a preliminary injunction.
Finally, ABA argued additional discretionary factors weigh against permissive intervention. ABA noted the retail associations’ attempt to intervene threatens to inject delays and prejudice while adding nothing to the attorney general’s defense on the merits. ABA also pointed out that the retail association’s failure to even try to meet the factors governing intervention as of right. To intervene as a right, a proposed intervenor must have a “direct significant and legally protectable interest in the [subject] at issue in the lawsuit and demonstrate that the plaintiffs’ lawsuit threatens that interest.” The interest must also be “unique.” In this case, the only interests the retail associations assert are in enforcing the IFPA, which are the same interests the attorney general is duty-bound to pursue. In addition, ABA claimed any perspective the retail associations wish to share can be adequately presented through an amicus brief without unduly burdening the court and prejudicing ABA.
Bottom Line: Judge Kendall will likely rule on the preliminary injunction by the end of November.
Documents: Amicus Brief, Reply Brief in Support of Preliminary Injunction, Opposition to Motion to Intervene.
