The U.S. District Court for the Northern District of Illinois ruled Monday 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.
The district judge was responding to recent Office of the Comptroller of the Currency’s (OCC) interim final actions confirming federal preemption of the IFPA that do not apply to credit unions. The ruling confirms preemption of the data-use provisions for federal credit unions.
Initially set to take effect July 1, the IFPA aims to ban the collection of interchange fees on the sales tax and tip segments of electronic transactions. Meanwhile, California’s Credit Unions and Nevada’s Credit Unions are awaiting the National Credit Union Administration’s (NCUA) rulemaking on preemption and will continue working with partners at America’s Credit Unions and the Illinois Credit Union League (ICUL) to ensure credit unions receive clarity and protections afforded to other financial institutions in the payments system.
Monday’s 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, the California and Nevada leagues, and America’s Credit Unions remain encouraged by ongoing efforts to address the law’s significant operational challenges. The IFPA delay was the result of consistent, state-level credit union advocacy.
Meanwhile, America’s Credit Unions, the Illinois Credit Union League, American Bankers Association, and Illinois Bankers Association issued a joint statement on Tuesday:
“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.”
America’s Credit Unions and the Illinois Credit Union League (ICUL) filed the lawsuit claiming the IFPA’s prohibition on collecting interchange from tax/gratuity portions of a transaction illegally preempts federal law.
The Illinois General Assembly approved a delay of the IFPA’s effective date of July 1, 2027 early Monday morning. Illinois Governor J.B. Pritzker must still sign the extension bill into law.
Last weekend, Illinois lawmakers had approved the state’s annual budget, which included a provision delaying the enforcement of the IFPA by 12 months, pushing the new deadline to July 1, 2027. This is the second year that the Illinois legislature has extended the effective date.
While this postponement was a victory for both cardholders and credit unions, lawsuits and recent guidance from the OCC and NCUA highlight the need for further intervention, as communicated by the California and Nevada leagues to credit union leaders on Monday. If the policy ultimately rolls out despite the delay, state-chartered credit unions and community banks in Illinois will face a competitive disadvantage, as federal entities will be exempt through preemption.
As other states contemplate mirroring this legislation, the law needs to be completely overturned, the leagues’ communication reiterated. It will add disorder and fragmentation into the transaction ecosystem.
In a joint statement on Monday, America’s Credit Unions, the Illinois Credit Union League (ICUL), the American Bankers Association, and the Illinois Bankers Association had said they welcomed the Illinois General Assembly’s decision to once again delay the IFPA implementation deadline for another year. It’s a reasonable step to protect Illinois businesses and consumers from facing payment chaos in just a month without interrupting the ongoing legal challenge to IFPA, the join statement said. “We remain confident in the strength of our case and look forward to securing permanent relief from this misguided law.”
Following in the footsteps of the OCC, the NCUA is currently drafting a final regulation to affirm that federal statutes override the IFPA. In support of these safeguards, America’s Credit Unions, ICUL, and allied groups submitted joint commentary endorsing the OCC’s measures last Friday.
California’s Credit Unions, Nevada’s Credit Unions, America’s Credit Unions, and ICUL are actively engaged with industry partners on this issue.
