![BankThink on the Credit Card Competition Act](https://arizent.brightspotcdn.com/dims4/default/53d384c/2147483647/strip/true/crop/8256x5504+0+0/resize/740x493!/quality/90/?url=https%3A%2F%2Fsource-media-brightspot.s3.us-east-1.amazonaws.com%2Ff6%2Fcb%2Fc66b44ea4eb0823b589593621465%2Fadobestock-453243491.jpeg)
WASHINGTON — Several banking and credit union trade groups are challenging Illinois' new swipe fee law in court, saying the changes override federal regulations.
"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," the groups said in the lawsuit filed Thursday. "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."
Illinois' budget became a flashpoint for bankers earlier this year after it included a provision
It was part of a larger compromise with retailers, who are getting a separate tax exemption eliminated in the state budget bill, and is designed to pass off the cost of that elimination to banks and payment processors rather than consumers.
The retailer trade group said that it disagrees with the characterization of the lawsuit.
"Credit card companies already adjust their charges to merchants after a transaction takes place if it's to increase the amount they take," said Doug Kantor from the Merchants Payments Coalition executive committee in a statement. "The banks' objection to the Illinois law isn't that it's hard to do, it's that the money would go in the opposite direction. And states certainly have the power to protect their tax collectors, like retailers, from being penalized for doing their jobs for the state. Banks can't use the 'preemption' excuse to undermine state tax collections. The court should summarily reject this case."
But bankers and card companies said that this would
"This extraordinary undertaking, which normally would take several years, would impose costly and burdensome (and potentially impossible) requirements on banks and other financial institutions of all types and sizes providing card services to customers," the groups said in the lawsuit.
The bank trade groups — including the American Bankers Association, the Illinois Bankers Association, Illinois Credit Union League and America's Credit Unions — said in their lawsuit that the state budget law is preempted by national law.
Specifically, the lawsuit says the Illinois budget is preempted by the National Bank Act and by the Durbin Amendment, which directs the Federal Reserve to make rules about interchange fees.
"The [Illinois budget] 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," ABA President and CEO Rob Nichols said in a statement. "We can't let that stand."
The lawsuit says the Illinois budget law "significantly interferes with multiple federally granted powers of national banks," most notably in processing credit and debit card transactions.
"It is therefore invalid," the groups said in the lawsuit.
The law also conflicts with the Durbin Amendment to the Electronic Fund Transfer Act, in which Congress directs the Fed to regulate interchange transaction fees with respect to an electronic debit transaction, according to the lawsuit. The trade groups asked that the court declare that the state legislation is preempted and is unconstitutional.
"The Federal Reserve promulgated Regulation II, which set a uniform standard limiting debit card interchange fees for a given transaction to a specific amount determined in part by reference to 'the value of the transaction,' and which does not carve out tax and gratuities from that value," the lawsuit said.