Illinois interchange litigation
Illinois Bankers Association v. Raoul
Date: Sept. 22, 2026
Issue: Whether the National Credit Union Administration’s (NCUA) interim final rule sufficiently preempts the Illinois Interchange Fee Prohibition Act’s (IFPA) interchange fee provision.
Case Summary: Judge Virginia Kendall of the Northern District of Illinois extended the permanent injunction to bar Illinois from enforcing the IFPA’s interchange fee prohibition against federal credit unions.
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 sharing certain data obtained from 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 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 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 AG 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 supporting ABA.
On April 26, 2026, the OCC issued an interim final rule and order addressing the IFPA. The rule amended 12 C.F.R. § 7.4002 to confirm that federal law permits national banks to charge certain fees, whether set by the bank or a third party, while the order stated that federal law preempts the IFPA for national banks and federal thrifts. The Seventh Circuit then remanded the case so the Northern District of Illinois could assess the effect of the OCC’s actions. On June 1, 2026, Judge Kendall 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. Judge Kendall held that the OCC’s revised regulation changed the preemption analysis and placed the interchange fee prohibition in conflict with federally authorized banking powers, while leaving her prior rulings on federal credit unions and the IFPA’s data usage limitation intact.
Like the OCC, the NCUA issued an interim final rule (IFR) in response to the court’s earlier rulings and adopted language that closely tracked the OCC’s approach. The IFR revised 12 C.F.R. § 701.5 to clarify that federal credit unions may charge non-interest fees, including interchange fees from credit and debit card transactions, and that NCUA has exclusive authority over those charges. The NCUA also broadly defined “charge” to include fees assessed or collected through payment networks, intermediaries, or other third parties.
First, Judge Kendall determined that the court could assess whether the NCUA’s interim final rule had the legal force needed to preempt the IFPA, but could not decide unpleaded claims that the agency violated the Administrative Procedure Act (APA). The court rejected the Illinois AG’s argument that the court should review the rule’s notice-and-comment process and good-cause justification, explaining that those issues arise under the APA and were not before the court. Instead, Judge Kendall treated the dispute as a preemption and statutory-interpretation question, requiring the court to independently decide whether the NCUA acted within its delegated authority and whether the rule could lawfully preempt state law.
Next, the court determined that ordinary conflict preemption principles, not the heightened standard that applies to national banks, govern the FCUA. Judge Kendall rejected ABA’s renewed argument that the court should apply NBA-style preemption to federal credit unions, noting that it had considered and rejected that position. Under the ordinary standard, the FCUA preempts state law only when Congress clearly intended that result, when compliance with both state and federal law is impossible, or when the state law would significantly interfere with clear federal interests.
Finally, the court analyzed the IFR and determined that the NCUA acted within its authority when it clarified that federal credit unions may charge interchange fees set through third parties. Judge Kendall explained that federal regulations can preempt state law when an agency acts within the authority Congress delegated to it. At the same time, Judge Kendall noted that courts must independently decide the scope of that authority.
Although the court questioned whether part of the revised regulation extended beyond the text of the FCUA, it resolved the issue on narrower grounds. The court ruled that the FCUA expressly allows federal credit unions to extend credit to members and grants them incidental powers needed to carry out that business. Because third-party fee arrangements can be necessary to provide those credit services, the court concluded the IFPA’s interchange fee restriction interfered with federal credit unions’ federally authorized powers. As a result, the court brought federal credit unions within the same preemption analysis it had applied to the other financial institutions covered by its June ruling.
Bottom Line: The court extended the permanent injunction to federal credit unions, ruling that the NCUA’s interim final rule preempts the IFPA’s interchange fee prohibition.
Document: Opinion
