Tuesday, October 8, 2024
An amicus brief, also known as a friend of the court brief, is a document submitted by a person or organization that is not a party to the case at hand but has an interest in its outcome. The OCC, in its amicus brief filed with the U.S. District Court for the Northern District of Illinois on Oct. 2, 2024, reiterates what financial institution trade groups have claimed in opposing the Interchange Fee Prohibition Act (IFPA).
The agency characterized the IFPA as "an ill-conceived, highly unusual, and largely unworkable state law that threatens to fragment and disrupt [an] efficient and effective system" of credit and debit card payments.
Not so, countered groups representing merchants. "Visa and Mastercard, not banks, set the prices of swipe fees," argued Doug Kantor, general counsel at the National Association of Convenience Stores. "Federal banking law simply doesn't prevent states from reining in these inflationary, centrally fixed fees."
NACS, the National Retail Federation, the Food Industry Association, the Illinois Retail Merchants Association and the Illinois Fuel and Retail Associationfiled a motion with the court on Oct. 4 seeking to intervene, in other words to become parties to the lawsuit, on the side of the state. If the request is denied, the groups said they would alternatively file an amicus brief with the court supporting the state's position.
"The Court need not simply take the banks at their word; the Court can instead hear from other affected parties," the merchant groups wrote the court. Merchants are prepared to offer "the perspective of those with years of experience in the industry" that is "crucial to assessing the credibility of [the banks'] allegations."
The IFPA, signed into law earlier this year, would bar payment networks, acquiring financial institutions and processors from charging interchange fees on the tax amounts or gratuities associated with sales of goods or services, effective July 1, 2025. The law also prohibits banks and others involved in electronic transactions (except merchants) from transferring or using data from transactions except to process those transactions, or as required by law.
In August 2024, trade groups representing banks and credit unions filed a lawsuit in the district court against Illinois Attorney General Kwame Raul seeking to have the IFPA thrown out. "If allowed to become effective, the IFPA would upend the intricate and carefully calibrated global system for debit and credit card purchases," the lawsuit states.
Noting that interchange fees compensate card-issuing financial institutions for the costs and risks associated with processing card payments, it is "vital to the modern economy," the groups argued.
Furthermore, payment transaction data from credit and debit card payments is "critical to a multitude of banking functions" including fraud detection, accounting reconciliation, Know Your Customer and anti-money laundering compliance, dispute management, and card rewards.
But perhaps more to the point, the law "usurps the federal government's sole regulatory authority over multiple types of federally chartered financial institutions; and in turn, it runs afoul of multiple provisions of federal and state law designed to ensure that federal and state financial institutions operate on a level playing field," the lawsuit states.
The trade groups, which include the Illinois Bankers Association, the American Bankers Association, America's Credit Unions and the Illinois Credit Union League, point to a number of federal laws that preempt the IFPA. Among them is the National Bank Act under which the OCC is granted authority to charter and regulate national banks. National banks are any banks that include NA in their name; two of the best know national banks are Bank of America and JPMorgan Chase.
The trade group also assert the Illinois law conflicts with the Durbin Amendment, which gives the Federal Reserve authority to regulate debit card interchange. The OCC, in its amicus brief, filed last week, makes the same arguments put forth by the trade groups.
For example, it states that "the IFPA ignores the vital role data plays in safeguarding the financial system." And it argues the law would impose "debilitating operational challenges" to financial institutions. "If the IFPA is not enjoined and invalidated, it may well trigger a domino effect of other states and localities enacting similar laws, thereby creating a fractured, highly inefficient, and unworkable payment system that would materially affect interstate commerce," the OCC wrote in its amicus brief.
Indeed, at least one state, Pennsylvania, has taken steps already to enact similar legislation. That legislation has been approved by a committee of the Pennsylvania House of Representatives and is now pending in the Pennsylvania state Senate. 
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