Dive Brief:
- A coalition of nine trade associations sued the Office of the Comptroller of the Currency and the National Credit Union Association on Thursday over the agencies’ decision earlier this year to preempt an Illinois law banning card interchange fees on sales tax and gratuities.
- The OCC “skipped over the notice-and-comment procedures required by the Administrative Procedure Act and the National Bank Act” when it issued a rule and order to preempt the federal bank law, according to the lawsuit, which was filed in U.S. District Court for the District of Columbia.
- “Nothing in the National Bank Act — or in the OCC’s poorly reasoned, slapdash rule — authorizes such collusive and excessive fees on merchants that are not being provided banking services in exchange for those fees,” said the lawsuit filed by the National Retail Federation, the National Grocers Association and three Illinois merchant associations.
Dive Insight:
Spokespeople for the OCC and NCUA did not immediately respond Thursday to requests for comment on the lawsuits.
Illinois Gov. JB Pritzker signed the state’s Interchange Fee Prohibition Act in June 2024 and it’s been the subject of litigation ever since. Illinois was the first state to enact such legislation to eliminate credit and debit card fees on the tax and tip portions of consumers’ tabs. Those fees are paid by merchants as revenue for the banks that issue the cards.
The law triggered an August 2024 lawsuit from associations representing banks and credit unions.
The lawsuit against U.S. regulators is a new legal front in litigation surrounding the Illinois law. Banks and credit unions had challenged the law in federal court in Chicago, a case that has now shifted to a federal appeals court after U.S. District Judge Virginia Kendall imposed an injunction on some parts of the law due to the OCC and NCUA preemptions.
Illinois and the bank associations are both appealing Kendall’s ruling, with arguments in that case scheduled for late January. The Illinois law covers debit and credit card transactions on the Visa and Mastercard networks, which handle “over 80%” of all card transactions, according to the merchants’ lawsuits.
The OCC moved to preempt the law in April 2026, as the 7th Circuit U.S. Court of Appeals was considering an appeal filed by the plaintiffs after Kendall initially upheld some parts of the law in February. The National Credit Union Administration followed quickly, patterning its own June 30 preemption rule for credit unions on the OCC action.
The OCC’s actions “cast significant doubt on the ability of states like Illinois to pass legislation that relieves merchants and consumers of these substantial financial burdens and thus will chill other States from doing so,” the trade groups said in their lawsuit.
This year, 32 interchange-related bills were introduced in 20 states, Washington, D.C. and Puerto Rico, according to the Electronic Transactions Association, which represents banks, card networks, and payment processors.
The association, which represents banks and payments companies like PayPal Holdings and card network Visa, expects to overcome the merchants’ latest legal action. “We are confident the OCC’s actions will pass muster,” an executive vice president for the ETA, Scott Talbott, said Thursday in an email.
Illinois lawmakers have delayed implementation of the bill, which is now set to take effect on July 1, 2027. Merchant groups representing retailers and restaurants contend that the Illinois law would save Illinois merchants and their customers about $500 million annually.
IIllinois merchants pay at least $242 million in interchange fees on taxes and tips yearly, according to the lawsuit, citing data from the Illinois Fuel & Retail Association.
