A federal court expanded an injunction on September 22, shielding federal credit unions from the enforcement of the Illinois Interchange Fee Prohibition Act. U.S. District Judge Virginia Kendall of the Northern District of Illinois granted a motion for partial reconsideration filed by the Illinois Bankers Association, ruling that the law’s restriction on interchange fees applied to taxes and gratuities is preempted under the Federal Credit Union Act.
Court Expands Injunction Following NCUA Rule
The ruling extends protections previously granted to other financial institutions under the state law, which bans banks, payment networks, and other entities from charging or receiving interchange fees on the tax and gratuity portions of debit and credit card transactions. In June, Judge Kendall issued a permanent injunction blocking the law’s enforcement against national banks, federal savings associations, out-of-state state-chartered banks covered by the Riegle-Neal Act, and payment card networks, relying on interim measures from the Office of the Comptroller of the Currency.
Because federal credit unions fall outside OCC supervision, they were not covered by the initial June order. However, the National Credit Union Administration issued an Interim Final Rule shortly after that decision asserting exclusive federal authority over federal credit unions’ ability to charge non-interest fees, including interchange fees. Prompted by this rule, the district court reconsidered the plaintiffs’ request and added federal credit unions to the permanent injunction.
Ordinary Conflict-Preemption and the Federal Credit Union Act
The court applied ordinary conflict-preemption principles, concluding that the Illinois interchange-fee limitation stands as an obstacle to the federally authorized business operations of credit unions, particularly regarding fee-setting arrangements with payment networks. The court evaluated the National Credit Union Administration rule under the framework established by Loper Bright Enterprises v. Raimondo, noting that courts must exercise independent judgment regarding statutory meaning rather than relying on Chevron deference.
While the court emphasized that agencies lack special authority to decide preemption questions without explicit congressional delegation, it relied on the agency’s explanation of statutory powers. The court used the rule as persuasive guidance to determine that the state law conflicts with the Federal Credit Union Act’s incidental-powers provision.
Banking Trade Groups React to the Ruling
The lawsuit challenging the Illinois Interchange Fee Prohibition Act was filed by the Illinois Bankers Association, the American Bankers Association, and other trade groups. In a joint statement reported by the American Bankers Association, the organizations welcomed the expansion of the injunction.
“The order means that only certain state-chartered institutions, and especially those chartered in Illinois, would be forced to comply with the misguided law when it takes effect next July,” the banking groups said. “In light of the court’s actions, state lawmakers should do the responsible thing and finally repeal IFPA in full and spare Illinois consumers and businesses from the payment chaos it would create.”
The underlying legal challenge remains subject to further review in the U.S. Court of Appeals for the Seventh Circuit.
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