An Illinois state law restricting interchange fees for certain payments threatens the national banking system by interfering with federal powers to regulate that system, the Office of the Comptroller of the Currency and a group of 10 former comptrollers said in separate court filings last week.
The Illinois Interchange Fee Prohibition Act, or IFPA, 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. The American Bankers Association, Illinois Bankers Association and other groups have challenged the law in federal court. However, in February, a district court judge upheld most of the IFPA, striking down only the portion pertaining to data sharing.
ABA and the other plaintiffs appealed the district court decision. In a pair of amicus briefs filed with the Seventh Circuit Court of Appeals, the OCC and former comptrollers warn that allowing the district court decision to stand would set a dangerous precedent.
The IFPA “is an unworkable state law that threatens to upend the nation’s intricately-designed payments system — a system in which national banks and Federal savings associations play critical roles,” the OCC said in its filing. “If IFPA is not permanently enjoined, it will erode the essential infrastructure of the payments system and require national banks, Federal savings associations, and others to expend ‘staggering’ sums to accommodate a single state’s regime.”
In the past, federal courts have not hesitated to find that the National Bank Act preempted state attempts to regulate national banks, said the 10 former comptrollers, which included individuals who served in both Republican and Democratic administrations. The Illinois law “prevents and significantly interferes with the exercise of those powers.”
“The preemption question in this case has serious implications for national bank powers. If the district court’s decision stands, other states may follow suit,” the comptrollers warned.
