Banking trade groups asked an Illinois court to permanently block a state law that bans banks from charging merchants fees on the tax and gratuity portions of card transactions.
The motion called for summary judgment in Illinois Bankers Association v. Kwame Raoul, the Illinois attorney general, seeking to permanently block the Illinois Interchange Fee Prohibition Act without a full trial. The plaintiffs said the IFPA disrupts the national payment system, undermines federal banking authority and exposes financial institutions to excessive penalties.
"[The law's] Interchange Fee Prohibition would force issuers to forgo a portion of the revenue that compensates them for taking on credit risk, monitoring for fraud, providing benefits to cardholders, and otherwise greasing the wheels of the state and national economy," the industry plaintiffs said Monday. "The court should grant the plaintiffs' summary judgment and permanently enjoin attorney general enforcement of the IFPA."
The plaintiffs comprise a range of banking and credit union groups, including the Illinois Bankers Association, the American Bankers Association, America's Credit Unions and the Illinois Credit Union League.
The IFPA,
The banking industry has not been the only cohort expressing concern with the IFPA. In October, the Office of the Comptroller of the Currency — under Biden-appointed Acting Comptroller Michael Hsu —
The OCC warned that compliance costs could be significant and may force banks to stop processing credit card transactions in Illinois.
"To comply with the IFPA, institutions would be forced to incur extraordinary costs in creating new systems and processes to effectuate the IFPA's first-of-its-kind exclusion of tax and gratuity amounts from the processing of interchange fees," the OCC said in its brief. "Compliance with the IFPA alone would seemingly require national banks to accommodate the taxation schemes of hundreds of Illinois localities, thereby frustrating the purposes of the national banking system and impairing national banks' ability to effectively and efficiently conduct the business of banking."
The OCC's preemption powers, rooted in the Supremacy Clause, allow national banks to bypass state laws that conflict with federal authority. However, recent Supreme Court rulings
Despite the higher bar for preemption, the Illinois law has already faced legal setbacks. A federal judge previously ruled in December that the law likely violates the National Bank Act, the Home Owner's Loan Act and other federal regulations. The judge granted a preliminary injunction preventing enforcement against national banks, federal savings institutions and out-of-state state-chartered banks.
Now, plaintiffs are seeking summary judgment to build on prior rulings and secure a permanent injunction that would bar the state attorney general from enforcing the law against all participants in the Illinois payment system. While the current injunction applies to various banks, the plaintiffs also requested expanding such an exemption to federal credit unions and payment networks. They argue that restricting these entities would indirectly undermine federally protected banks and credit unions, because banks depend on these third parties to carry out their business.
"The Court should enter a permanent injunction that covers not only federal and out-of-state banks, savings banks, and credit unions, but also other participants in the tightly intertwined payment system when they perform functions necessary to those institutions' federally protected payment businesses,"
A hearing on the motion is scheduled for April 16.
