The Office of the Comptroller of the Currency said Friday in a court brief that a federal judge should block an Illinois law prohibiting interchange fees on the tax and tip portion of bills, adhering to regulators’ preemption of the measure.
The OCC issued an interim final order last month to preempt the Illinois statute. The federal agency’s revised final rule takes effect June 30, a day before the state’s Interchange Fee Prohibition Act is scheduled to take effect.
As the OCC order “will independently preempt the IFPA, this Court should refrain in the interest of prudence and judicial economy from issuing an opinion that will be mooted in the span of weeks,” the agency wrote in its amicus brief filed Friday.
Four trade associations – the Illinois Bankers Association, the American Bankers Association, America’s Credit Unions and Illinois Credit Union League – sued Illinois in August 2024 over the Interchange Fee Prohibition Act, two months after Gov. JB Pritzker, a Democrat, signed it.
On May 8, the 7th Circuit U.S. Court of Appeals vacated a ruling by U.S. District Judge Virginia Kendall that upheld the law’s central part, remanding the case back to her for further proceedings in light of the OCC’s move to preempt the law.
Illinois was the first state to enact such a law, which inspired similar efforts in other states, where legislators have sought to rein in card-swipe fees. Restaurant and retail groups have promoted the Illinois law as their members sought ways to curb the fees they pay when a consumer pays with a card.
In a court filing last week, Illinois Attorney General Kwame Raoul said the OCC’s actions are “procedurally invalid” because the agency had failed to adhere to rulemaking requirements of the Administrative Procedure Act.
Even if the OCC’s new rule was valid, “national banks still do not have power under the regulation to receive interchange fees that are not established on a competitive basis,” under the National Bank Act, the AG’s office said in its Thursday brief.
Meanwhile, trade associations for banks and credit unions suing over the law urged Kendall to block it, citing the federal preemption. The OCC’s new rule “expressly recognizes national banks’ pre-existing power to charge interchange fees, including fees set at default rates established by payment-card networks,” the plaintiffs said in their brief.
In February, Kendall denied bank and credit union plaintiffs an injunction, though she struck down part of the IFPA which limited the use of transaction data by banks, networks and other entities.
In a separate move last week, the National Credit Union Administration, which charters and regulates federal credit unions, appeared to follow the OCC’s preemption effort.
The NCUA submitted an “interim final rule” concerning preemption of federal credit union “non-interest charges and fees” for review by the Office of Management and Budget. That process mirrored the OCC’s preemption effort in April. The May 18 filing does not include text of the proposed rule.
An agency spokesperson declined to comment on the issue.
An executive for the Electronic Transactions Association, Scott Talbott, said the NCUA effort would leave only Illinois-chartered banks subject to the IFPA.
The OCC also argued that Illinois cannot challenge the agency’s rulemaking as part of the litigation in Chicago and needs to bring a separate legal action. The AG said in its brief that the OCC’s argument over an APA challenge “cannot be reconciled with Supreme Court precedent,” citing a 1982 ruling.
The OCC was forced to hasten its preemption effort because of Kendall’s ruling, the plaintiffs said Thursday in their brief.
“The OCC had good cause to issue the rule immediately given the uncertainty this Court’s opinion created about national banks’ power to receive interchange fees, combined with the threat the Interchange Fee Prohibition poses to national banks and the availability of card payments,” the plaintiffs said.
As a result of the law, some Illinois businesses could decide to stop accepting payment cards and some banks might leave the state, they said.
Lawyers for the AG said the OCC’s preemption “relies primarily on its invalid interim rule and otherwise simply rehashes plaintiffs’ arguments in this litigation.”
Ahead of the law’s enforcement, two credit union trade groups have blanketed Illinois media with advertising to “raise awareness of the negative consumer impact,” America’s Credit Unions said in a May 18 statement.
Speaking Wednesday at a fintech conference sponsored by the news outlet Semafor and the Financial Technology Association, Comptroller of the Currency Jonathan Gould declined to discuss the Illinois law.
At the same event, Gould urged banks and other financial institutions to “shore up the political support and the political consensus that has existed for decades that is responsible and necessary for legal preemption to prevail in courts.”
He also said the OCC “can’t monitor all the states” to stay apprised of state lawmaking that may vex financial institutions. “We really depend upon our institutions and the banking bar to help us be eyes and ears as to what’s going on,” Gould said.
