A federal court today ruled that an Illinois law restricting the collection of interchange fees is preempted by federal law for national banks, federal savings associations, out-of-state state-chartered banks protected by federal law and payment card networks, reversing its prior conclusion.
The Illinois Interchange Fee Prohibition Act, or IFPA, was originally scheduled to take effect on July 1, but state lawmakers pushed back the implementation date to 2027 in a vote early Monday. The American Bankers Association, Illinois Bankers Association and others challenged the law in U.S. District Court for Northern Illinois, which upheld most of the IFPA in a ruling earlier this year.
Last month, the Seventh Circuit U.S. Court of Appeals remanded the case back to the lower court after the Office of the Comptroller of the Currency took two actions. First, the OCC issued an interim final order asserting that federal law preempts the IFPA. Second, the agency issued an interim final rule confirming the longstanding powers under federal law for national banks to charge certain fees, regardless of whether the bank sets those fees or a third party.
Ruling on remand
District Judge Virginia Kendall evaluated the OCC’s interim final measures, ultimately concluding that the plaintiffs proved irreparable harm warranting a permanent injunction. She also ruled in favor of federal preemption.
“[W]hile there is strong public interest for the people of Illinois to see their legislative determinations come to fruition, there is a stronger interest still in ensuring the Supremacy Clause is properly effectuated,” Kendall said.
The court issued a permanent injunction against enforcing IFPA’s interchange-fee prohibition and data-usage limitations against national banks, banks chartered by states other than Illinois, federal savings associations and payment card networks. But she didn’t exempt other financial institutions from the interchange fee prohibition, such as credit unions, out-of-state chartered savings associations and out-of-state chartered savings banks. She did, however, exempt federal credit unions from the law’s data usage limitations.
As for Illinois-chartered banks, savings associations and credit unions, in December 2024, the court dismissed plaintiffs’ claims seeking injunctive relief for these institutions because the Illinois attorney general invoked sovereign immunity.
The new ruling comes as several states consider legislation modeled on the IFPA. Colorado lawmakers recently passed legislation to ban the collection of interchange fees on sales taxes. Colorado Gov. Jared Polis has not said whether he intends to sign the bill or veto it.
Plaintiffs welcome ruling
In a joint statement, ABA and the other plaintiffs said the decision will spare millions of Illinois businesses and citizens from payment chaos.
“This decision is an important step toward preserving a consistent, nationwide framework for electronic payments,” they said. “At the same time, it does not fully resolve the challenges created by this law. Even with this decision, credit unions and Illinois-chartered banks remain subject to IFPA, creating ongoing uncertainty and the risk of inconsistent treatment for parties in the same transaction.
“Electronic payments rely on a highly interconnected network that requires a uniform national standard,” the plaintiffs added. “We will continue working through the courts and with policymakers to ensure that all participants in the payments system are treated consistently, so the customers they serve will also be protected from the harm IFPA will cause. We look forward to the 7th Circuit’s review of this misguided law.”
