Credit unions and banking groups won a temporary reprieve in their fight against Illinois' controversial Interchange Fee Prohibition Act (IFPA), but industry leaders say the battle over the law's future is entering a critical new phase.
Originally scheduled to take effect July 1, 2025, Illinois lawmakers voted over the weekend to delay implementation until July 1, 2026, giving courts, regulators and lawmakers additional time to address legal and operational concerns surrounding the first-of-its-kind law.
The IFPA would prohibit financial institutions from collecting interchange fees on the sales tax and gratuity portions of debit and credit card transactions. Supporters argue the law would reduce costs for merchants, while opponents contend it would create significant disruptions throughout the payments ecosystem.
Illinois credit unions welcomed the latest legislative delay.
"This extension provides much-needed certainty to preserve the strength and integrity of the electronic payments infrastructure that Illinois families depend on every day," said Illinois Credit Union League President and CEO Libby Calderone. She warned that a fragmented payment system could create unnecessary costs, confusion and risk for consumers, businesses and financial institutions.
Ashley Sharp, ICUL's chief legal officer and senior vice president of state advocacy, said the extension gives policymakers and stakeholders more time to evaluate the law's legal, operational and consumer impacts.
As the new implementation date approaches, federal regulators have increasingly sided with industry concerns. In April, the Office of the Comptroller of the Currency (OCC) issued an interim final rule and order concluding that federal law preempts the Illinois statute for national banks and federal savings associations, warning the law could create a "complex, potentially unworkable, and destabilizing" standard for payment card systems.
The Defense Credit Union Council (DCUC) recently applauded the OCC's action, arguing that a patchwork of state interchange mandates would undermine the uniformity of the national payments system. DCUC cited OCC estimates that institutions could face more than $232 million in system-upgrade costs, approximately $145 million annually in documentation-processing expenses and roughly $200 million in lost issuer revenue if the law were broadly implemented.
Meanwhile, America's Credit Unions and the Illinois Credit Union League continue challenging the law in court, arguing it unlawfully interferes with federally authorized payment-card activities and compensation structures. The NCUA has also moved to confirm that federal law preempts the IFPA for federal credit unions, a step industry leaders say is critical before the July 1 effective date.
The stakes extend well beyond Illinois. Similar proposals have emerged in New York, Pennsylvania and Massachusetts, prompting concerns that multiple state-specific interchange rules could fragment national payment networks and increase costs for credit unions, banks, merchants and consumers alike.
With just weeks remaining before the law is scheduled to take effect, the outcome of ongoing litigation, regulatory actions and legislative efforts could determine not only the future of Illinois' law but also whether other states pursue similar restrictions.
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