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Opponents of Illinois’s controversial Interchange Fee Prohibition Act have ratcheted up the pressure to preempt the law at the federal level or overturn it at the state level. The latest effort comes after a federal judge earlier this year upheld the law’s key provision, which exempts Illinois merchants from paying interchange on sales tax and gratuities included in card transactions.
The Office of the Comptroller of the Currency filed notice earlier this week of a rule to preempt the IFPA. A day later, small businesses, an Illinois small-business owner, and organizations representing Illinois banks and credit unions held a press conference urging Illinois lawmakers to overturn the law before the state legislature adjourns May 31.
Reports surfaced late Thursday indicating the National Credit Union Administration, which regulates credit unions, will issue an order to preempt the IFPA. The NCUA could not be reached for comment.
The OCC’s effort to preempt the IFPA follows its filing of two amicus briefs opposing the law. The OCC’s first objection was filed in October 2024, about four months after the law passed. The second brief was filed in March after Judge Virginia Kendall upheld the law’s exemption for state merchants on paying interchange on sales tax and tips.
The OCC has the authority to override state laws for national banks if the laws prevent or significantly interfere with federal banking powers.
The OCC’s interim rule is currently in the review stage, according to the agency’s Web site, and the exact language of the rule is not yet public. The Trump Administration is expected to greenlight the rule quickly, which will make the language around the rule public and allow it to go into effect while the OCC solicits public comment, payments experts say. The comments process can last up to 90 days.
In prior filings with the court, the OCC has argued the IFPA supersedes the National Bank Act and impedes the ability of financial institutions to earn non-interest revenue and fees, which include interchange. In her ruling, Judge Kendall concluded the IFPA does not supersede the National Bank Act because the card networks, not banks, set interchange rates.
Rob Karr, president and chief executive of the Illinois Retail Merchants Association, said in a statement the OCC’s proposed rule is “prioritizing the bottom line of banks and credit card companies over meaningful relief for businesses and consumers.”
Karr added the OCC has “failed to explain their reasoning or allow public review,” and that the agency’s goal “is an end-run around the legal process after a judge recently upheld the law.”
The appellate court is scheduled to hear oral arguments May 13.
Hard on the heels of the OCC’s filing, organizations representing banks, credit unions, and businesses in Illinois held a joint press conference urging state lawmakers to overturn the IFPA before it takes effect July 1.
Libby Calderone, president and chief executive of the Illinois Credit Union League, said the IFPA will create chaos and confusion for businesses and consumers, as most merchants will likely require consumers to pay sales tax and tips in cash to comply with the law.
“Will consumers carry enough cash to cover tax and tip?” Calderone rhetorically asked, adding that in the post-Covid world many consumers have significantly reduced their use of cash.
Calderone added that credit unions doing business in Illinois are weighing whether to continue authorizing card transactions in the state, as the penalties for non-compliance with the IFPA are considered to be too costly.
Ben Jackson, executive vice president of government affairs for the Illinois Bankers Association, added IBA members “are very troubled by how they will comply” with the IFPA and “are seriously considering removing credit card offers and other services” in the state enjoyed by businesses and consumers.
Jackson also noted IBA members are deeply concerned about implementing the technology needed to comply with the law. “There is no workable technology in place right now that can do what this law requires,” Jackson said.
It will cost small businesses about $10,000 to comply with the IFPA, while their savings from reducing interchange costs will save them about $60 annually, Jackson said.
