Merchants, banks press their cases over Illinois interchange law

Attorneys representing merchants this week urged a federal district court judge in Illinois to reject a lawsuit filed by banks seeking to overturn a state law there that would ban interchange assessments (or what they call "swipe fees") on sales tax and tips. But they weren't the only ones amping up the rhetoric.

"Banks are desperate to deny reality," said Doug Kantor, general counsel for the National Association of Convenience Stores. "They want the court to ignore the fact that banks don't set swipe fees and that Visa and Mastercard do. Banks hide behind price-setting by those credit card giants – and now the credit card giants are trying to hide behind banks in court to overturn a sensible law. It's simply unfair for merchants to pay swipe fees on tax and tip money that they must give to the state or employees."

Kantor is also a member of the Merchants Payments Coalition's executive committee, which represents merchants of every stripe doing battle against banks and the credit card companies. His comments followed oral arguments presented before U.S. District Court Judge Virginia Kendall in a legal challenge to the Illinois Interchange Fee Prohibition Act, which would ban banks, card companies, acquirers and processors from collecting any fees on the tax portion of card payments or on workers' tips.

Law placed on hold

Illinois is the first state to pass such legislation, although several other states have similar laws under consideration. The Illinois Interchange Fee Prohibition Act was originally set to take effect in July 2025, but the state legislature moved to postpone that start date by a year after the Illinois Bankers Association filed a lawsuit seeking to overturn the law.

Illinois Attorney General Kwame Raoul also asked that the bank's challenge be denied. Also voicing opposition to the challenge were attorneys representing the Illinois Retail Merchants Association and two other MPC member associations (the National Retail Federation and the Food Industry Association). All asserted that since interchange fees are set by non-banks (Visa and Mastercard) they can't evade complying with the law.

Bankers, for their part, argued before the court that the law is bad policy and preempted by federal banking laws, such as the National Bank Act and the Federal Credit Union Act. (A preliminary injunction has been issued by Judge Kendall exempting national banks and federal savings associations from the law based on the fact that federal law takes precedence over state law for these institutions.)

What's more, "it will create chaos in Illinois every time someone tries to use their credit card," the Illinois Bankers Association and the Illinois Credit Union League said in a statement. "The court has already concluded that national banks are entitled to relief from the law, and today we were able to show why other players in the payments ecosystem, including Illinois' community banks and credit unions, deserve the same relief. We remain confident that the law and facts are on our side."

Merchants continue pressing for federal relief

The back-and-forth over the Illinois law comes as merchants continue to press Congress for relief from interchange.

Senator Dick Durbin, the Illinois Democrat who authored the Durbin Amendment that gave life to debit card interchange regulation, introduced legislation, the Credit Card Competition Act, that would require card-issuing financial institutions with at least $100 billion in assets to program their cards so that they can be processed over two card networks, in addition to the Visa or Mastercard networks.

The MPC argued in a statement issued this week that news of rising profits at the nation's largest banks backs up their case for congressional action on interchange. "Whether it's annual fees charged directly to consumers or processing fees charged to merchants that drive up prices consumers pay, banks are taking more out of our pockets every day," said Stephanie Martz, an MPC executive committee member and general counsel at the NRF.

JPMorgan Chase, Citigroup, Wells Fargo and PNC Bank all reported double-digit profit growth year-over-year for the third quarter.

Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.