OCC Backs Credit Unions, Banks Opposing Illinois Interchange Law

Credit unions and banks received significant support from a federal agency in the fight against a relatively new Illinois law that 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.

Late Tuesday, the Office of the Comptroller of the Currency (OCC) filed an amicus brief with the U.S. District Court of Northern Illinois backing the arguments by banks and credit unions to stop the Illinois Interchange Fee Prohibition Act (IFPA), which was signed into law in June.

In its filing, the OCC characterized the state law as an “ill-conceived, highly unusual and largely unworkable state law that threatens to fragment and disrupt” the nation’s banking system.

In August, the American Bankers Association (ABA), America’s Credit Unions, the Illinois Bankers Association and the Illinois Credit Union League, filed a preliminary injunction with the U.S. District Court of Northern Illinois, arguing 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.”

In the OCC’s filing, the agency similarly stated, “The IFPA’s Data Usage Prohibition is tantamount to a near-complete ban on national banks’ use of transaction data in ways that are expressly authorized by federal law.”

In a statement after OCC’s filing, America’s Credit Unions said, “In its amicus brief, the OCC identified many of the same problems with the law that we detailed in our preliminary injunction motion. This new state law is bad for consumers and small businesses, and it violates multiple federal laws. We appreciate the OCC spelling that out so clearly.”

On Thursday, the Defense Credit Union Council (DCUC) urged the NCUA to oppose the IFPA. In a letter to NCUA officials, DCUC Chief Advocacy Officer, Jason Stverak wrote, ”The law threatens the established framework for interchange fees, which are vital to covering the costs of maintaining secure, reliable payment networks. Without these fees, the sustainability of services provided by credit unions could be jeopardized.”

Credit unions and bankers are seeking a preliminary injunction to halt the implementation of the IFPA while the court decides the merits of the case.

“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 credit union and bankers lawsuit stated.

If not halted, the IFPA would go into effect on July 1, 2025.

READ MORE: The amicus brief filed by the OCC.