A federal judge has permanently blocked key portions of Illinois' controversial Interchange Fee Prohibition Act (IFPA) from being enforced against national banks, federal savings associations and payment networks, while leaving credit unions facing continued uncertainty as regulators consider separate preemption protections.
The U.S. District Court for the Northern District of Illinois issued the ruling Monday following recent actions by the Office of the Comptroller of the Currency, which determined that federal law preempts the Illinois statute for OCC-supervised institutions.
The decision stems from a lawsuit brought by America's Credit Unions, the Illinois Credit Union League, the American Bankers Association and the Illinois Bankers Association challenging the law's restrictions on interchange fees collected on the tax and gratuity portions of electronic payment transactions.
While the court's injunction broadly protects banks and payment networks, it does not extend the same protections to credit unions. The ruling does, however, confirm that the law's data-use restrictions are preempted for federal credit unions.
"This ruling was expected and stems from the OCC's recent action that applies to banks, not credit unions," said America's Credit Unions President and CEO Scott Simpson. "While it does not change the current status of credit unions under the IFPA, we remain encouraged by ongoing efforts to address the law's significant operational challenges."
In a joint statement, the trade groups said the ruling recognizes that federal law protects critical components of the national payments system from conflicting state requirements and helps prevent "payment chaos" for Illinois businesses and consumers.
However, they noted that the decision leaves credit unions and Illinois-chartered banks subject to the law, creating the potential for inconsistent treatment among participants in the same payment transaction.
The ruling comes just hours after the Illinois General Assembly approved legislation delaying the law's implementation date from July 1, 2026, to July 1, 2027. The measure now awaits Gov. JB Pritzker's signature.
Attention now shifts to the National Credit Union Administration, which is expected to issue a proposed rule addressing whether federal law similarly preempts the IFPA for federally chartered credit unions. Industry groups have argued that without such action, credit unions could face operational and compliance burdens not imposed on competing financial institutions.
"We will continue working with our partners at the Illinois Credit Union League to ensure credit unions receive the same clarity and protections afforded to other financial institutions in the payments system," Simpson said.
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