The Office of the Comptroller of the Currency today announced an interim final rule and interim final order related to preemption of the Illinois Interchange Fee Prohibition Act.
The interim final rule confirms the longstanding powers under federal law for national banks to charge certain fees, regardless of whether those fees are set by the bank or a third party. The preexisting powers under federal law have recently come into question relative to the IFPA, which will become effective on July 1.
The 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 and other groups have challenged the IFPA in federal court. However, earlier this year, a district court judge upheld most of the law, striking down only the portion pertaining to data sharing.
According to the OCC, IFPA would create “a complex, potentially unworkable and destabilizing standard for national banks, federal savings associations, and the nation’s payment card systems,” adding that the “effects could be exacerbated to the extent other states impose similarly unworkable or conflicting standards.”
The OCC’s interim final order confirms that federal law preempts the IFPA, expressly providing that national banks and federal thrifts are neither subject to nor required to comply with this state law. The agency said its actions will help prevent “the imminent negative effects” of the Illinois law’s application to OCC-regulated banks.
“They do not affect and are not in conflict with the applicability of any other federal laws that do or may in the future apply to banks regarding payment card activities,” the agency said. “Indeed, by appropriately applying preemption to the IFPA, it affirms the ability of the federal government, including Congress, to set consistent standards governing payment card activities of national banks and federal savings associations, including as to interchange fees.”
ABA, Illinois Bankers Association, Illinois Credit Union League and America’s Credit Unions signaled their support of today’s OCC actions.
“We welcome the Office of the Comptroller of the Currency’s interim final actions confirming both preemption of the Illinois Interchange Fee Prohibition Act by federal law and national banks’ federal powers,” the associations wrote. “The OCC’s actions make it clear that states cannot interfere with national bank powers that President Lincoln and Congress placed firmly under federal authority more than 160 years ago and remain essential to the effective functioning of our banking system.”
According to the trade groups, the actions are consistent with the OCC’s prior amicus filings in this case and with the agency’s public commitment to defend federal preemption.
“They reinforce the firm legal foundation of our ongoing appeal and underscore that Illinois’ misguided law is unlawful and should not be implemented,” the associations said. “The OCC’s actions should also send a strong signal to other states to follow the law and not repeat Illinois’ mistake.”
ABA and the other plaintiffs are asking the Seventh Circuit Court of Appeals to reverse the lower court decision and issue an injunction against enforcement of the law. In a new court filing, they warned of “staggering” compliance burdens for banks and other financial institutions if the law is allowed to take effect this summer.
