Just yesterday, the U.S. District Court for the Northern District of Illinois ruled on the remanded challenge to the Illinois Interchange Fee Prohibition Act (IFPA), issuing a “permanent injunction that includes banks, out-of-state state-chartered banks, federal savings associations, and payment networks.” This ruling is a result of the Office of the Comptroller of the Currency’s (OCC) final rule and final order issued in April, which confirmed that federal law preempts the IFPA.
Under the IFPA, banks and credit unions would be prohibited from collecting interchange or “swipe fees” on the sales tax portion of a transaction, as well as on any tips made with a credit or debit card. The bill has been strongly opposed by financial institutions and trade associations, who have been working to prevent its implementation since the Act’s passing in 2024. The opposition has been mildly successful in that mission. In April, the Illinois General Assembly approved a one-year delay of the bill, pushing it back from July 1, 2026, to July 1, 2027.
In this new ruling, the U.S. District Court for the Northern District of Illinois has affirmed that federal law preempts IFPA, meaning that under Federal law, banks have the power to charge certain fees, and therefore, national banks and Federal savings associations are “neither subject to nor required to comply with” IFPA. However, this ruling does not apply to credit unions or state-chartered banks.
Scott Simpson, President and CEO of America’s Credit Unions, issued a statement following the ruling, confirming its scope and noting that the organization is hoping for similar rulings from the NCUA.
“This ruling was expected and stems from the OCC’s recent action that applies to banks, not credit unions. While it does not change the current status of credit unions under the IFPA, we remain encouraged by ongoing efforts to address the law’s significant operational challenges,” said Simpson. “We are awaiting the NCUA’s rulemaking on preemption and will continue working with our partners at the Illinois Credit Union League to ensure credit unions receive the same clarity and protections afforded to other financial institutions in the payments system.”
Additionally, America’s Credit Unions, the Illinois Credit Union League, American Bankers Association, and Illinois Bankers Association issued a joint statement which read:
“We welcome today’s ruling, which recognizes that federal law protects critical elements of the national payments system from conflicting state requirements. The court appropriately concluded that the Interchange Fee Prohibition Act cannot be applied to national banks, federal savings associations, payment networks as well as certain other financial services providers because it is preempted by federal law. 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. 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. 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.”
As the statement notes, a lawsuit has been filed by America’s Credit Unions and the Illinois Credit Union League against IFPA, claiming it illegally preempts federal law. The ruling of this lawsuit, as well as potential future rulings from the NCUA, will determine whether or not credit unions will be required to adhere to the IFPA once it goes into effect.
