(The Center Square) – A coalition of banking and credit union associations is going after the state of Illinois regarding a new law affecting interchange fees.
The Interchange Fee Prohibition Act doesn’t ban or restrict credit card swipe fees, but it limits banks from charging interchange fees on tax and tip revenues. The trade groups argued in the U.S. District Court for the Northern District of Illinois that the law would “throw well-operating payment card systems into chaos.”
“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,” said Rob Nichols, president of the American Bankers Association. “We also joined this lawsuit to strongly defend the dual banking system President Lincoln created in 1863 that has served our nation so well.”
Critics said the law will require consumers to swipe their card twice for a single transaction, one for the purchase of the goods or services subject to interchange and one for the tax or gratuity not subject to interchange.
The filing outlines how the new Illinois law violates multiple federal statutes including the National Bank Act and the Federal Credit Union 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.
The financial industry is concerned that if Illinois’ law is allowed to stand, other states could follow suit.
Gov. J.B. Pritzker said the change was the best outcome for Illinois retailers, who will also be capped in the discount they get for collecting and remitting sales taxes.
The Illinois Retail Merchants Association said the law would provide tangible relief to Illinois workers, families and businesses by limiting the fees financial institutions can charge on transactions.
The plaintiffs will seek a preliminary injunction halting implementation of the new law while the court decides the merits of the case.
The law is set to take effect July 1, 2025, unless a court steps in and blocks the implementation of the legislation.
