Updated July 7, 2026
The Illinois Interchange Fee Prohibition Act (IFPA) was dealt a serious blow on June 1st when U.S. District Judge Virginia Kendall of the Northern District of Illinois issued a permanent injunction after finding that the IFPA is preempted by federal law. National banks, federal savings associations, payment networks, and out-of-state banks are covered by the injunction. Credit unions and Illinois chartered banks are not covered by the injunction but one week after the injunction was announced, the National Credit Union Administration (NCUA) issued an interim final rule preempting the IFPA as it pertains to federal credit unions.
The injunction was issued hours after the Illinois General Assembly voted to delay implementation of the law until July 1, 2027. This second delay of the law, which was originally supposed to go into effect July 1, 2025, was driven by the ongoing litigation and controversy surrounding the bill. A number of legislators have also filed legislation to repeal the IFPA. The law was passed in 2024 after lobbying from the Illinois Retail Merchants Association; the intent was to help offset increased costs retailers would incur after a tax exemption they were receiving was capped to close a gap in the state budget.
The IFPA has been ensnared in litigation since it was passed. On February 10th, Judge Kendall upheld the part of the IFPA prohibiting the collection of interchange fees on sales taxes, excise taxes, and tips. She wrote that the decision regarding interchange fees was a "close case" because the interchange fee provision of the IFPA does not directly regulate banks as the card networks (i.e., Visa and Mastercard) set interchange fees. However, the Judge struck down the part of the law that prohibits entities other than merchants from transferring or using data from a transaction except to facilitate or process the transaction.
On May 8th, Judge Kendall's February ruling was vacated by the U.S. Court of Appeals for the Seventh Circuit, following an OCC interim final rule and OCC final order issued by the Office of the Controller of Currency establishing that federal law preempts key provisions of the IFPA with respect to national banks and federal savings associations. Although Judge Kendall expressed some reservations regarding the timing and process the OCC used to issue the new rule, she found that the OCC's revised regulation clarified national banks' authority to receive interchange fees set by payment networks and other third parties.
The previous ruling striking down the part of the IFPA that imposes data usage limitations remains unchanged.
The plaintiffs, the Illinois Bankers Association, the American Bankers Association, America's Credit Unions and Illinois Credit Union League, and various trade organizations representing banks, credit unions and the payment networks applauded the ruling. Advocates opposing the IFPA affirmed that they will continue to work towards similar exemptions for credit unions and Illinois chartered banks.
Trade groups representing merchants, including the Merchant Payments Coalition, the Illinois Retail Merchants Association and the National Association of Convenience Stores denounced the ruling. Some IFPA supporters assert that the OCC rule did not follow proper process and is therefore invalid and will be overturned, which will then presumably justify lifting the injunction, allowing implementation of the IFPA.
The fate of the IFPA as it pertains to credit unions and Illinois chartered banks remains unclear as they are not covered by the injunction. However, on June 8th, a week after the injunction was issued, the NCUA announced an interim final rule clarifying that federal credit unions have authority under the Federal Credit Union Act to charge non-interest charges and fees, including interchange fees on debit and credit card transactions, even when they are set by or in consultation with third parties. The NCUA said it consulted with the OCC and adopted similar language to avoid disparity between federal credit unions and national banks. Groups representing credit unions are hopeful that the court will grant them an injunction. If that happens only Illinois chartered banks will be subject to the IFPA.
In May, Colorado's legislature passed a bill similar to the IFPA that would eliminate interchange fees on sales tax. However, Colorado's Governor Jared Polis vetoed the bill on June 3rd. In his veto the governor stated that the bill presented too much legal risk to Colorado's business environment and consumers, citing the ongoing litigation around IFPA. He also noted that recent moves by the OCC and NCUA make it clear the federal government will argue that state level laws to regulate interchange are preempted by federal law. Finally, the governor noted that even if the bill were to survive legal scrutiny and go into effect, it may not be fully implementable or operationally feasible.
Verisave's Take:
This ruling is a serious blow to the IFPA. Some IFPA supporters assert the ruling will be overturned because the process used to issue the OCC rule was improper, making the rule invalid. However, that argument does not address the core issue – according to the Supremacy Clause of the U.S. Constitution, federal law supersedes state law. This makes it hard to see how the IFPA can ultimately prevail unless a compelling argument can be formulated as to why the IFPA takes precedence when it is at odds with several federal laws including the National Bank Act. Furthermore, based on the court's rationale for issuing an injunction covering national banks after the OCC issued its interim final rule, it seems likely federal credit unions will be granted an exemption as a result of the interim final rule subsequently issued by the NCUA. If this happens, the vast majority of card transactions in Illinois will be exempt from IFPA, as only Illinois chartered banks and credit unions will be subject to the law. While litigation can be expected to rage on as plaintiffs and their allies continue to fight for exemptions for credit unions and Illinois' chartered banks, and as IFPA supporters fight to have the latest ruling overturned, the bottom line is that this ruling does not bode well for IFPA's future, or the future of similar legislation by other states. The veto of Colorado's bill, two days after the new IFPA ruling was issued, indicates that the new ruling, moves by the OCC and the NCUA, and ongoing litigation are having a chilling effect on similar legislation.
