Wednesday, October 9, 2024
Illinois Governor J.B. Pritzker signed the Interchange Fee Prohibition Act (IFPA) into law in May of this year. The law, which takes effect next July, 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. It 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.
Last month trade groups representing financial institutions filed a lawsuit in U.S. District Court for the Northern District of Illinois seeking to have the IFPA overturned. Those groups include the Illinois Bankers Association, the American Bankers Association, America’s Credit Unions and the Illinois Credit Union League.
The Office of the Comptroller of the Currency, a federal regulator that oversees many of the nation’s largest banks, filed an amicus brief with the court last week that backed the trade groups’ request to overturn the IFPA.
The financial institutions trade groups asserted in the lawsuit, among other things, that the Durbin Amendment directed the Federal Reserve to regulate debit card interchange. “States cannot limit those powers or set different limits for any debit transaction or portion thereof,” the groups stated.
Not true, insisted Senator Durbin, U.S. Senate Majority Whip and Illinois’s senior senator. Durbin, in his amicus brief, stated that he is “uniquely positioned to offer an important perspective” and that the IFPA is “consistent” with the law’s intent.
“The IFPA aligns with the Durbin Amendment’s text, structure and purpose,” he wrote. “Like the Durbin Amendment, the IFPA only applies to fees that are price-fixed by networks on behalf of [debit card] issuers. The IFPA defines the fees it regulates as ‘established, charged, or received by a payment card network for the purpose of compensating an issuer for its involvement in an electronic payment transaction’ – a definition that closely aligns with the Durbin Amendment’s definition.”
Durbin’s amicus brief concludes by insisting that “the IFPA is both consistent with the Durbin Amendment and consistent with sound policy that will help protect merchants and consumers from excessive and anti-competitive fees.”
Durbin made it clear that his interest in interchange is not limited to debit cards. In addition to backing the Illinois law, he proposed legislation – the Credit Card Competition Act – that would upend the way credit card payments get cleared.
The bill proposes that FIs with at least $100 billion in assets enable the credit cards they issue to be processed over at least one network that isn’t owned by Visa or Mastercard. Those networks are Pulse (which is owned by Discover), Star, NYCE and Shazam.
Groups representing merchants claim the Credit Card Competition Act could save their members over $16 billion a year – savings they suggest would trickle down to consumers in the form of lower prices. 
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