Chief Judge Virginia Kendall of the Northern District of Illinois has extended her preliminary injunction prohibiting Illinois from enforcing the Illinois Interchange Fee Prohibition Act (the “IFPA”) to cover out-of-state banks conducting business in the state.

Judge Kendall already had ruled that Illinois could not enforce the IFPA on nationally chartered banks and federal savings associations but requested additional briefing with respect to federal credit unions and out-of-state banks.

In extending the preliminary injunction to out-of-state banks, she concluded that IFPA is also likely preempted under the Riegle-Neal Interstate Banking and Branching Efficiency Act since she had previously concluded that the National Bank Act likely preempts the IFPA. The Riegle-Neal Act ensures that out-of-state state banks can compete with nationally chartered banks and forcing out-of-state state banks to comply with the IFPA would violate the plain statutory language.

However, Judge Kendall refused to extend the preliminary injunction to cover federal credit unions, stating that after applying conflict preemption analysis, she was not persuaded that the Federal Credit Union Act likely preempts the IFPA.

Effective July 1, 2025, IFPA prohibits the collection of debit and credit card interchange fees for sales taxes, excise taxes and gratuities if the merchant informs the acquiring bank of the amount of these taxes and gratuities. The merchant can either provide the amount of taxes and gratuities to the merchant bank at the time of the transaction authorization or settlement or seek reimbursement within 180 days of the transaction date from the issuer. Issuers, payment card networks, acquiring banks and processors cannot increase the rate or amount of fees on the portion of the transaction subject to interchange to circumvent the effect of the law. The IFPA also prohibits participants involved in an electronic payment transaction (except the merchant) from transferring or using data from that transaction except to facilitate or process the transaction, or as required by law. Violations of the foregoing subject the entity to a civil penalty of $1,000 per transaction and the issuer must refund the merchant any interchange fee collected on taxes or gratuities.

On August 15, 2024, the Illinois Bankers Association, American Bankers Association, America’s Credit Unions, and Illinois Credit Union League filed a complaint against the Illinois Attorney General challenging the enactment of the IFPA and sought a declaratory judgment that the IFPA is preempted by federal laws, unconstitutional, and invalid as applied to any participant in the payment system.

In granting the initial preliminary injunction, the Court determined that the Interchange Fee Prohibition significantly interfered with a national banks’ powers to charge fees, regulate credit and debit card transactions, and provide data processing and transmission services by dictating to credit and debit card issuers how much they may charge for a given transaction and how to best structure their non-interest fee arrangement with merchants. The Court commented that the “Interchange Fee Prohibition seems to be the state’s effort to substitute its own judgment for the judgment of the banks, which federal law empowers banks to exercise according to ‘sound banking principles’ taking any investigatory or enforcement actions under the IFPA.”