Illinois interchange litigation
Illinois Bankers Association v. Raoul
Date: June 1, 2026
Issue: Whether the Office of the Comptroller of the Currency’s (OCC) interim final rule and interim final order sufficiently preempt the Illinois Interchange Fee Prohibition Act’s (IFPA) interchange fee provision and data usage limitation.
Case Summary: On remand, Judge Virginia Kendall of the Northern District of Illinois permanently enjoined Illinois from enforcing the IFPA’s interchange fee prohibition against national banks, out-of-state state-chartered banks covered by the Riegle-Neal Act, federal savings associations, and payment card networks.
The IFPA prohibits financial institutions from charging credit and debit card interchange fees on the portions of transactions related to state and local taxes and tips. The law also restricts the sharing of certain data obtained in the transactions.
The American Bankers Association and its co-plaintiffs (collectively ABA) sued Kwame Raoul in his official capacity as Illinois attorney general (Illinois AG) and moved for a preliminary injunction, arguing the National Bank Act (NBA), Home Owners’ Loan Act (HOLA), and Federal Credit Union Act (FCUA) preempt the IFPA. On Dec. 20, 2024, Judge Kendall issued a partial preliminary injunction blocking enforcement against national banks and federal savings associations, ruling the ABA was likely to win on the merits of its NBA and HOLA preemption claims. The court also denied relief to Illinois-chartered institutions on sovereign-immunity grounds. Judge Kendall later extended the injunction to out-of-state state-chartered banks but not to federal credit unions.
On March 17, 2025, ABA moved for summary judgment, but Judge Kendall partially upheld the IFPA, ruling that federal law does not preempt the Interchange Fee Provision, but does preempt the Data Usage Limitation. The court thus denied the ABA’s request for a permanent injunction as to the interchange fee provision but granted a permanent injunction barring enforcement of the data usage limitation. ABA and the Illinois AG both cross-appealed to the Seventh Circuit.
On March 6, 2026, ABA filed its opening brief and advanced three main arguments: the NBA, HOLA, and FCUA preempt the interchange fee provision; Riegle-Neal and traditional equity principles govern the prohibition; and the Dormant Commerce Clause bars the Illinois attorney general from imposing the IFPA’s burdens on out-of-state financial institutions while exempting those chartered in Illinois. The OCC and a group of former comptrollers also filed amicus briefs in support of ABA.
On April 26, 2026, the OCC issued an interim final rule and interim final order on the IFPA. The rule amended 12 C.F.R. § 7.4002 and confirmed that federal law permits national banks to charge certain fees, whether set by the bank or a third party. The 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. As a result, the Seventh Circuit remanded the case to the Northern District of Illinois to evaluate the impact of the OCC’s actions.
The Illinois AG made six arguments in his supplemental brief:
- Contrary to the OCC’s suggestion, the court may consider the validity of its interim rule and order in this proceeding;
- Plaintiffs have not established that the power to receive interchange fees is one of the “incidental powers” authorized by the National Bank Act;
- The OCC’s interim order does not directly preempt the Interchange Fee Prohibition;
- The OCC’s preemption determination is not entitled to great weight;
- Even if the interim rule is effective, national banks still do not have power under the regulation to receive interchange fees that are not established on a competitive basis; and
- The OCC’s interim rule and order are irrelevant to federal credit unions and payment card networks.
On May 21, 2026, ABA filed a response brief to the Illinois AG’s supplemental brief. ABA argued the interim final measures confirm the IFPA is preempted and that the Illinois AG’s challenges to the OCC’s actions fail both procedurally and on the merits. ABA also argued that any injunction against the Interchange Fee Provision should extend to federally protected financial institutions and the payment system participants needed to provide complete relief.
Judge Kendall first rejected the OCC’s argument that the court lacked jurisdiction to consider the impact of its interim final measures because the Illinois AG had not asserted claims under the Administrative Procedure Act (APA). The court explained that its jurisdiction arose under the federal-question statute and that the OCC’s absence from the case did not prevent it from assessing the legal effect of the agency’s actions or deciding whether federal law preempts the IFPA.
Turning to the merits, Judge Kendall determined OCC’s interim final order unpersuasive and entitled to only limited weight under the Skidmore framework, which requires courts to evaluate agency preemption determinations based on the thoroughness of the agency’s analysis, the validity of its reasoning, and the consistency of its position with prior determinations. The court criticized the OCC’s reliance on an emergency exception to bypass notice-and-comment procedures, questioned whether the agency followed the statutory process Congress established for state-law-specific preemption determinations, and concluded the interim final order added little beyond confirming the OCC’s view that federal law preempts the IFPA.
On remand, Judge Kendall evaluated the impact of the revised 12 C.F.R. § 7.4002 and ruled that the OCC’s amendments materially altered the preemption analysis in the court’s February 2026 ruling as it applied to national banks, federal savings associations, and federally protected out-of-state banks. Judge Kendall determined the OCC’s revised rule materially changed the preemption analysis by expressly allowing banks to receive interchange fees through payment card networks and other third parties. Because the IFPA restricts the collection of those fees, the court concluded it conflicts with powers the OCC now recognizes as part of national banks’ federally authorized authority. Applying the Barnett Bank standard, Judge Kendall ruled that the IFPA significantly interferes with those powers by forcing banks and payment networks to alter their fee-setting practices and comply with numerous state and local tax requirements. The court therefore ruled that federal law preempts the interchange fee prohibition as applied to national banks, federal savings associations, out-of-state state-chartered banks and payment card networks.
Finally, the court granted ABA’s request for a permanent injunction and barred Illinois from enforcing the IFPA’s interchange fee prohibition against national banks, out-of-state state-chartered banks protected by federal law, federal savings associations and payment card networks. Judge Kendall held that ABA satisfied all four requirements for permanent injunctive relief by showing irreparable harm, the absence of an adequate legal remedy, a favorable balance of hardships, and that an injunction served the public interest. The court found that financial institutions would face substantial and unrecoverable compliance costs without an injunction and that some could suffer significant business disruptions. The court also determined that the balance of equities and public interest favored relief because, although Illinois has an interest in enforcing its laws, the stronger interest lies in ensuring that federal law remains supreme when state and federal law conflict.
Bottom Line: Judge Kendall held that the OCC’s revised interchange-fee regulation materially changed the preemption analysis, permanently enjoined Illinois from enforcing the IFPA’s interchange fee prohibition against national banks, federally protected out-of-state banks, federal savings associations, and payment card networks, and left intact her earlier rulings regarding federal credit unions and the IFPA’s data usage limitation.
Document: Brief
