The Illinois “swipe fee” law, set to limit certain fees on credit and debit card transactions, continues to face significant pushback in the courts. On February 6, 2025, the U.S. District Court for the Northern District of Illinois declined to issue a preliminary injunction to block the law. The law, however, will remain blocked for out-of-state banks, following an extension of a previous injunction.
The law, known as the Interchange Fee Prohibition Act (IFPA), aims to eliminate fees on the tax and tip portions of card transactions, set to take effect on July 1, 2025. This would only affect the tax and tip amounts, with the rest of the transaction, such as the cost of goods and services, still subject to regular swipe fees.
The law faced legal challenges from banking groups, which filed a lawsuit in August. The groups argued that the law conflicts with federal banking regulations and would create compliance challenges. They also raised concerns over the costs associated with developing new systems to distinguish between different parts of a transaction, such as taxes and tips.
In December, Judge Virginia Kendall issued a ruling that blocked the law from applying to federally chartered banks, but did not extend the injunction to state banks or credit card companies. After further arguments from both sides, the judge ruled again on February 6. She denied an extension of the injunction to credit unions, citing that the Federal Credit Union Act did not override the new state law. However, the judge granted relief to out-of-state banks, ruling that the Riegle-Neal Interstate Banking and Branching Efficiency Act may preempt the IFPA in these cases.
The law’s passage marked a significant shift in Illinois’ payment processing rules. But the court’s mixed rulings add complexity to the situation, creating uncertainty for different financial institutions. This case highlights the challenges states face when attempting to regulate payment systems that span national and international borders.
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