Illinois Interchange Fee Prohibition Act
Illinois Bankers Association v. Kwame Raoul, in his official capacity as Illinois attorney general
Date: Feb. 6, 2025
Issue: Should the court extend injunctive relief to out-of-state state-chartered banks (out-of-state banks) and federal credit unions against enforcement of the Illinois Interchange Prohibition Act (IFPA)?
Case Summary: Judge Virginia Kendall of the Northern District of Illinois extended the preliminary injunction against enforcing the IFPA to out-of-state chartered banks but declined to apply it to federal credit unions.
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). The IFPA also mandates a “data usage limitation” that prohibits “any entity, other than the merchant” involved in an electronic payment transaction to “distribute, exchange, transfer, disseminate, or use” the associated data “except to facilitate or process the transaction or as required by law.”
ABA and its co-plaintiffs (collectively ABA) sued Kwame Raoul in his official capacity as Illinois attorney general and moved for a preliminary injunction challenging the IFPA. In the complaint, ABA argued the 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, arguing it would likely succeed on the merits and that its members would suffer irreparable harm absent a preliminary injunction.
Judge Kendall entered a partial preliminary injunction against implementing the IFPA because the NBA and HOLA preempt it. Most notably, the court paused the implementation against national banks and federal savings associations, holding that ABA was likely to succeed on the merits for these institutions. However, the injunction was partial because the court did not grant Illinois-chartered financial institutions relief. ABA argued that under Illinois wildcard statutes, state financial institutions receive the same protections as their federal counterparts. However, because the court dismissed ABA’s state law claims based on sovereign immunity under the Eleventh Amendment these institutions were not granted injunctive relief. The court also determined that the Illinois statute remains valid when applied to payment networks. Additionally, Judge Kendall questioned whether the FCUA or the Riegle-Neal Act provides a private right of action for ABA to advance preemption claims for federal credit unions and out-of-state banks and requested additional briefing.
After reviewing the parties’ joint supplemental brief, Judge Kendall ruled that the Riegle-Neal Act likely preempts the IFPA for out-of-state chartered banks. Under the Riegle-Neal Act, a host state’s laws must apply equally to branches of out-of-state state banks and out-of-state national banks. Judge Kendall observed that the Riegle-Neal Act’s plain language suggests that it is meant to ensure out-of-state banks can compete with nationally chartered banks. Judge Kendall emphasized that enforcing the IFPA against out-of-state banks while exempting nationally chartered banks would violate the Riegle-Neal Act.
Judge Kendall also pointed out that other courts have similarly applied the Riegle-Neal Act. In Pereira v. Regions Bank, the Eleventh Circuit determined that a Florida statute was preempted for nationally chartered banks and then ruled that the Riegle-Neal Act also preempted the law for out-of-state banks. Because Judge Kendall found that the NBA likely preempts the IFPA for federal banks, she concluded that the Riegle-Neal Act likely preempts the IFPA for out-of-state banks.
However, Judge Kendall declined to extend the preliminary injunction to federal credit unions. The FCUA preempts any state law that attempts to limit or affect specific aspects of federal credit union loans and lines of credit, including credit cards issued to members. Examining whether the FCUA preempts the IFPA, Judge Kendall clarified that the Barnett Bank “significant interference” standard does not apply; the issue depends on a conflict-preemption analysis. Judge Kendall reasoned that no clear conflict between the FCUA and IFPA was present, so the FCUA likely does not preempt the IFPA.
Bottom Line: A status conference is scheduled for March 6, 2025.
Documents: Opinion
