Court Rules Federal Law Preempts Illinois Interchange Law
Posted: Jun 03 2026
A federal court has ruled that an Illinois law restricting the collection of interchange fees is preempted by federal law for national banks, federal savings associations, out-of-state state-chartered banks protected by federal law and payment card networks, reversing its prior conclusion.
The Illinois Interchange Fee Prohibition Act, or IFPA, was originally scheduled to take effect on July 1, but state lawmakers voted to push back the implementation date to 2027. The American Bankers Association, Illinois Bankers Association and others challenged the law in U.S. District Court for Northern Illinois, which upheld most of the IFPA in a ruling earlier this year.
Last month, the Seventh Circuit U.S. Court of Appeals remanded the case back to the lower court after the Office of the Comptroller of the Currency took two actions. First, the OCC issued an interim final order asserting that federal law preempts the IFPA. Second, the agency issued an interim final rule confirming the longstanding powers under federal law for national banks to charge certain fees, regardless of whether the bank sets those fees or a third party.
District Judge Virginia Kendall evaluated the OCC’s interim final measures, ultimately concluding that the plaintiffs proved irreparable harm warranting a permanent injunction. She also ruled in favor of federal preemption.
The court issued a permanent injunction against enforcing IFPA’s interchange-fee prohibition and data-usage limitations against national banks, banks chartered by states other than Illinois, federal savings associations and payment card networks. But she didn’t exempt other financial institutions from the interchange fee prohibition, such as credit unions, out-of-state chartered savings associations and out-of-state chartered savings banks. She did, however, exempt federal credit unions from the law’s data usage limitations.
The new ruling comes as several states consider legislation modeled on the IFPA. Colorado lawmakers recently passed legislation to ban the collection of interchange fees on sales taxes. Colorado Gov. Jared Polis has not said whether he intends to sign the bill or veto it.