The merchants’ lawsuit doesn’t hold back.
It calls the Office of the Comptroller of the Currency’s rule “poorly reasoned” and “slapdash,” and says nothing in federal banking law authorizes “such collusive and excessive fees.” That’s the language in a pair of suits filed this week by retail and restaurant groups. They want to stop two federal regulators from shielding card swipe fees from Illinois’ first-in-the-nation ban on charging them against sales tax and tips.
The legal tug-of-war so far
Illinois passed its Interchange Fee Prohibition Act in 2024. It was set to take effect July 1, but legal challenges pushed it back a year. In February, U.S. District Judge Virginia Kendall rejected the banks’ argument that the National Bank Act overrides the state law. Her reasoning: swipe fees are set by card networks like Visa and Mastercard, and networks aren’t banks.
The banks appealed. While that appeal was pending, the OCC issued a rule in April saying the National Bank Act preempts state laws like Illinois’ for national banks, even when the fees are set by a third party. The 7th U.S. Circuit Court of Appeals sent the case back to Kendall, and in June she ruled against the Illinois law, citing the OCC rule.
The National Credit Union Administration (NCUA) followed in June with a similar rule covering federal credit unions. In September, Kendall widened her injunction to include them. Illinois Attorney General Kwame Raoul has said he’ll appeal both rulings.
NRF Senior Vice President and General Counsel Marissa Bostick put the merchants’ view bluntly: “Rather than accept a court ruling they didn’t like, the banks and credit unions ran to regulators in Washington who tried to undo that decision without giving the public a chance to weigh in.”
What the merchants are arguing
The suits were filed in U.S. District Court in Washington, D.C. The plaintiffs are:
- National Association of Convenience Stores
- National Retail Federation
- Retail Industry Leaders Association’s Retail Litigation Center
- FMI, the Food Industry Association
- National Restaurant Association’s Restaurant Law Center
- National Grocers Association
- Illinois Retail Merchants Association
- Illinois Fuel and Retail Association
- Illinois Restaurant Association
They make two main claims. The first is about substance. The OCC suit says the rule rests on a flawed reading of national bank powers and of preemption. Illinois’ law covers only fees set by card networks, not by banks, so it “targets the business of card networks rather than the business of banking.” The suit also says the fees go to merchants with no relationship to the bank collecting them, and are far higher than needed to cover banks’ profitable card operations.
The second claim is about process. The OCC issued its rule in “interim final” form, with no advance notice, just weeks before the law was to take effect. Normally, affected groups get months to respond. The suit says that skips the Administrative Procedure Act’s “notice and comment” requirement. It also points to past court decisions overturning OCC preemption moves, including one noting that “questions have repeatedly been raised about OCC’s independence from the banks it oversees.”
The NCUA suit makes the same points. It calls that rule “poorly reasoned” and “slapdash,” says nothing in the Federal Credit Union Act preempts the Illinois law, and argues the agency overstepped its authority and skipped notice and comment.
Why the money matters
Swipe fees total nearly $200 billion a year nationwide, roughly 10 times the rates charged in Europe. The suits say those costs ultimately show up in the prices consumers pay, while issuing banks collect immense profits. Fees on sales tax and tips are especially galling to merchants, who never get to keep that money. Illinois estimates its law would save merchants and customers about $500 million a year, and the delay means “hundreds of millions of dollars more” in fees in the meantime.
The other side
America’s Credit Unions President/CEO Scott Simpson says the NCUA acted “squarely within its authority.”
“Consumers deserve a payments system that is affordable, secure, and works the same way wherever they use their cards. That’s why federal preemption matters. The NCUA acted squarely within its authority under the Federal Credit Union Act to reaffirm a uniform federal standard for credit unions and prevent a patchwork of state laws from disrupting card payments,” Simpson said.
He continued, “While merchant groups claim this is about consumer affordability, retailers have no obligation to pass interchange cuts along at the register. Previous interchange restrictions have proven that big box retailers will pad their own pockets with the savings. Instead, stripping away interchange undermines the very funding that supports card security, fraud prevention, and low-cost financial services for everyday families. America’s Credit Unions will continue our work to protect a reliable, uniform payments system for all consumers and credit unions.”
What to watch
Several tracks are running at once: the D.C. suits, Illinois’ appeals, and the injunction that keeps the law on ice. If you run a business, watch the July deadline and the rulings before it, and check your processing statements to see what you pay on tax and tips. If you’re a consumer, don’t expect prices to change soon, whichever side wins.