Preliminary Injunction Halts Illinois Interchange Fee Prohibition Act

According to an article by the Ryan firm, Judge Virginia Kendall of the Northern District of Illinois issued a preliminary injunction on December 20, 2024, against enforcing the Illinois Interchange Fee Prohibition Act (IFPA). The case, Illinois Bankers Association v. Raoul, challenges IFPA’s restrictions on credit and debit card interchange fees and data usage related to transactions involving taxes and tips.

The Interchange Fee Prohibition Act, which is set to take effect on July 1, 2025, aims to prohibit financial institutions from charging interchange fees on the tax and tip portions of transactions and limit the sharing of transaction data. The Illinois Bankers Association argued that IFPA was preempted by federal laws such as the National Banking Act (NBA) and the Home Owners’ Loan Act (HOLA). The court agreed, finding that IFPA conflicted with federal provisions allowing financial institutions to charge such fees and provide data services.

Judge Kendall concluded that IFPA’s restrictions would irreparably harm financial institutions by necessitating costly compliance measures, including overhauling IT systems to distinguish transaction tax and tip components. The injunction prevents these provisions from applying to national banks and savings institutions governed by NBA and HOLA.

Jim Eads, Principal at Ryan, said, “While the Illinois Bankers won an injunction, it is my understanding that Visa and Mastercard will still have to abide by the law, which may force them to renegotiate their contracts with the federal banks. This ruling doesn’t cover state-chartered banks. So, on July 1, when you use your credit card to pay for a dinner, will there be multiple charges, one for the food, one for the tax, and one for the tip? Will the consumer see a difference? Questions remain to be answered.”

For financial institutions, this case underscores the importance of monitoring legislative developments that could impact transaction fee structures and data operations. The ruling suggests potential regulatory challenges ahead, particularly as other jurisdictions, like Europe, impose transaction fee limits.