Bank & Credit Union Groups File Lawsuit Challenging New Illinois Law
The groups seek a preliminary injunction to stop the implementation of the new Illinois Interchange Fee Prohibition Act.
A lawsuit filed Thursday in the U.S. District Court for the Northern District of Illinois was a direct challenge by banks and credit unions to the Illinois Interchange Fee Prohibition Act (IFPA) signed into law on June 7.
The lawsuit, filed by the American Bankers Association (ABA), America’s Credit Unions, the Illinois Bankers Association and the Illinois Credit Union League, argued if the IFPA is allowed to go into effect, it “would throw the modern and efficient payment system into chaos and undermine the significant benefits that credit and debit cards provide to consumers and businesses.”
According to details of the IFPA, the law would ban banks, payment networks and other entities from charging or receiving interchange fees in Illinois on the portion of a debit or credit card transaction attributable to tax or gratuity.
The groups are seeking a preliminary injunction to halt the implementation of the IFPA while the court decides the merits of the case.
According to the lawsuit, the groups argued the IFPA violates multiple statutes including the Federal Credit Union Act and the National Bank Act “and cannot be enforced against national or state-chartered banks, federal or state savings institutions, federal or state-chartered credit unions, nor their service providers.”
In the complaint, the groups asked the court to declare the state legislation preempted and unconstitutional as applied, and to prevent Illinois from taking any investigatory or enforcement actions based on the law, according to a joint statement from the groups involved.
“This Court’s intervention is urgently needed to prevent Illinois from infringing on the federally guaranteed powers of national banks, federal savings associations, and federal credit unions. Without injunctive relief, this scheme threatens not only to impose substantial and unrecoverable costs and risks on these entities and other participants in the payment system, but also create chaos throughout the state’s economy. This Court should declare that the IFPA is invalid in all of its applications and enjoin its enforcement as to Plaintiffs’ members and any other participants in the payment system needed to provide those members with complete relief,” the lawsuit stated.
In a statement to media about the jointly-filed lawsuit, America’s Credit Unions President/CEO Jim Nussle said, “Illinois lawmakers made a grave mistake when throwing small businesses, consumers, and local economies to the wayside in the Land of Lincoln when they passed the IFPA.”
Nussle continued, “America’s Credit Unions is joining this lawsuit with our banking trade partners to send a clear message – we will always stand up for the American consumer when interchange and the electronic payment ecosystem is disrupted to benefit bad actors and big box retailers. With over four million people in Illinois trusting credit unions to help live their best financial lives, it is our duty to combat unconstitutional legislation.”
ABA President/CEO Rob Nichols said, “We’re joining together in this legal challenge to protect Illinois consumers, small businesses and the financial institutions that serve them from the unprecedented chaos and confusion this new state law would create. We also joined this lawsuit to strongly defend the dual banking system President Lincoln created in 1863 that has served our nation so well. The IFPA clearly violates the National Bank Act, which gives the federal government specific authority over national banks, as well as a long list of other federal laws designed to protect our financial system. We can’t let that stand.”
Tom Kane, president/CEO of the Illinois Credit Union League added, “The Interchange Fee Prohibition Act would create a significant disruption to a global interchange system that works well today. The Act presents major challenges for all financial institutions – small and large – while providing a windfall to the largest retailers doing business in Illinois. Most concerning of all, the Act will have a negative impact on small businesses and consumers in Illinois that rely upon safe and convenient card transactions. The filing of this litigation ensures that the courts will carefully review the legality of this Illinois law, which has never been tried anywhere else in the world.”
The State of Illinois had not responded to the lawsuit as of Thursday.