A federal judge today ordered a preliminary injunction against enforcement of an Illinois state law restricting interchange fees for national banks and federal savings associations but left the law in effect for Illinois-chartered institutions and credit card networks for now. The order also leaves the law in effect for out-of-state banks and federal credit unions until the court can review the legal arguments in more detail.
The Illinois Interchange Fee Prohibition Act bans banks, payment networks and other entities from charging or receiving interchange fees in Illinois on the portion of a debit or credit card transaction attributable to tax or gratuity. In August, the American Bankers Association, Illinois Bankers Association and other groups challenged the law in U.S. District Court for the Northern District of Illinois, arguing it violates multiple federal statutes, including the National Bank Act and the Federal Credit Union Act. The OCC filed a rare amicus brief in October in support of the associations’ position.
In her order, Judge Virginia Kendall agreed the federal law preempted state law when it came to national banks and federal savings associations. However, Kendall reserved judgement on the question of federal preemption for out-of-state-chartered institutions and other institutions pending a supplemental briefing on the matter from the plaintiffs. The judge ordered a briefing of no more than 10 pages on the subject to be delivered by Jan. 15, with the state having until Jan. 22 to submit a response of equal length.
In a joint statement, ABA, IBA and the other plaintiffs said they welcomed the court’s ruling to pause implementation of the law for national banks and federal savings associations.
“The injunction means that many Illinois consumers will be spared the chaos this law threatens to inflict on our modern payments system until the case can be heard, and that the court recognizes our ‘demonstrated likelihood of success’ on the merits of our National Bank Act claims,” the plaintiffs said. “We look forward to answering the judge’s questions to ensure that this relief applies to all financial institutions involved in the Illinois payment system, so the customers they serve will also be protected from the harm IFPA will cause if it is allowed to move forward.”
