Federal ruling gives national banks win in Illinois interchange case

A federal district court judge in Chicago dealt a blow to an Illinois law that would prohibit interchange assessments on the tax and tip portions of card transactions. The ruling, by Virginia Kendall, chief justice of U.S. District Court for the Northern District of Illinois, permanently enjoined the state from enforcing the law against national banks, out-of-state state-chartered banks, federal savings associations and payment networks.

But retailers are planning an appeal, as are credit unions and banks chartered by the state of Illinois.

Justice Kendall’s ruling comes on the heels of a vote by the state legislature to delay implementation of the Interchange Fee Prohibition Act by a year, meaning it would take effect July 1, 2027.

The Illinois Bankers Association, the American Bankers Association and trade group representing credit unions (America’s Credit Unions) sued to block the IFPA arguing that it was preempted by federal laws: the National Bank Act, the Home Owners Loan Act and the Federal Credit Union Act. The Office of the Comptroller of the Currency and several former comptrollers filed an amicus brief backing that position.

In March 2026, the court denied the banking groups’ request for a permanent injunction regarding interchange fees (although it did grant an injunction barring the sharing of certain data obtained in transactions). The ABA and the other plaintiffs took their case to the Seventh Circuit U.S. Court of Appeals.

Then in late April, the OCC issued a ruling, set to take effect on June 30, that confirmed federal law permits national banks and federal savings banks to charge certain fees (like interchange), whether set by the bank or a third party (for example, Visa and Mastercard). As a result, the appeals court sent the case back to the district court for reconsideration.

The June 1 ruling arose out of that reconsideration. But the ruling did not include credit unions.

Dueling reactions

In a statement, the ABA and its co-plaintiffs applauded the decision, but not wholeheartedly. “This decision is an important step toward preserving a consistent, nationwide framework for electronic payments. At the same time, it does not fully resolve the challenges created by this law,” the groups stated. “Even with this decision, credit unions and Illinois-chartered banks remain subject to IFPA, creating ongoing uncertainty and the risk of inconsistent treatment for parties in the same transaction.”

The statement continued, “Electronic payments rely on a highly interconnected network that requires a uniform national standard. We will continue working through the courts and with policymakers to ensure that all participants in the payments system are treated consistently… the customers they serve will also be protected from the harm IFPA will cause.”

The Merchants Payments Coalition decried the decision. “The Illinois decision was based on a technicality and is temporary,” said Doug Kantor, general counsel of the National Association of Convenience Stores and a member of the MPC executive committee.

Kantor, in a statement issued by MPC, said ,“OCC has the law wrong on preemption,” and the ruling will be challenged in court. He added, “That rule will be overturned and the Illinois law – and any other state laws on swipe fees – will be able to go into effect.”

Several states have laws under consideration that would prohibit interchange on the tip and/or tax portions of card payments. They include Arizona, Colorado, Delaware and Pennsylvania.

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