Federal agency files against Illinois' swipe fee prohibition for tax and tips

(The Center Square) – Several groups have filed legal challenges against an Illinois law regarding interchange fees.

The Interchange Fee Prohibition Act doesn’t ban or restrict credit card swipe fees, but it limits banks from charging interchange fees on tax and tip revenues. The law, which was backed by the Illinois Retail Merchants Association, was the first such statute in the country.

Banking trade groups argued in court that the law would “throw well-operating payment card systems into chaos.”

“We also joined this lawsuit to strongly defend the dual banking system President Lincoln created in 1863 that has served our nation so well,” said Rob Nichols, president of the American Bankers Association.

The Center for Legal Action for the American Free Enterprise Chamber of Commerce has now filed an amicus brief in the ongoing lawsuit against the Act. The brief lays out two specific ways the IFPA would upend the principles of the National Bank Act of 1863, passed during the Civil War to inject uniformity and stability to a fragmented banking system consisting of disparate state laws.

“Left unchecked, the IFPA would not only inflict untold consumer harm in the form of increased fees, but also take the nation backwards to a Civil War era patchwork banking system marked by instability and confusion,” said Machalagh Carr, Director of AmFree’s Center for Legal Action.

The Office of the Comptroller of the Currency, an independent bureau of the U.S. Department of the Treasury, has also filed an amicus brief against the law, saying it's "misguided" and will leave national banks with "extraordinary operational burdens."

"[Illinois' Interchange Fee Prohibition Act] prevents or significantly interferes with national banks’ exercise of their power under the [National Banking Act] to process electronic payment transaction data," the OCC filing said in asking for a preliminary injunction. "The national bank powers infringed upon by the IFPA are of fundamental importance to maintaining a safe and sound banking system."

Gov. J.B. Pritzker said the change was the best outcome for Illinois retailers, who will also be capped in the discount they get for collecting and remitting sales taxes. Pritzker said he is confident that the state of Illinois will prevail in court.

“When things get brought to court, you never know how they’ll turn out,” said Pritzker. “I think this one can be defended well and we’ll end up with the law we have on the books being affirmed.”

The law is set to take effect July 1, 2025, unless a court steps in and blocks the implementation of the legislation.