Henry Meier, Esq., The Law Office of Henry Meier, Esq.
In a decision that could have an impact far beyond Illinois, a federal district court ruled that the Illinois Interchange Fee Prohibition Act (IFPA) applies to both federally chartered banks and credit unions. Ill.
The IFPA is scheduled to take effect on July 1, 2026. It has two main provisions. Most importantly, it prohibits financial institutions from including state and local taxes and tips in the calculation of interchange fees. Secondly, it limits the use of transaction data to what is necessary to execute the transaction. The Illinois court ruled that the data provision was preempted as applied to federally chartered banks and credit unions.
Specifically, the court held that since NCUA regulations authorize federally chartered credit unions to engage in data transmission activities, Illinois’ law conflicts with this authority.
Conversely, the court rejected arguments that the Federal Credit Union Act should be interpreted as broadly as the National Bank Act. The court also rejected a second argument claiming that as federal instrumentalities credit unions were exempt from state level.
The case will undoubtedly be appealed, so it is possible that the judge’s ruling will be halted pending the outcome.
The court said it could not give credit unions “the full strength of NBA preemption into the FCUA based on vague gestures at other federal entities.”
If the law takes effect, merchants will have up to 180 days to claim a reimbursement of an interchange fee charge that includes state taxes or gratuities. Theoretically, financial institutions also have the option of excluding these charges at the time of the transaction, but it’s not yet clear if this technological capability exists.
Legislatures across the country have introduced legislation similar to Illinois’. It’s critical to stay on top of this issue, because the ruling could:
- Encourage merchants to push for state-level enactment across the country
- Be a catalyst for closer scrutiny of credit union preemption
While the judge ultimately ruled that both banks and credit unions had to comply with portions of this law, her analysis details how credit unions have far less protection against state laws than federally chartered banks.