Take A “Brief” Second – Illinois Interchange Litigation Update

The last time we discussed the Illinois Interchange Litigation, I noted that the case — and the broader interchange issue — are far from resolved. So, I’m back to give you a brief update on where the case currently stands and what we know right now.

Where did we leave it last time?

When I last covered this topic, the District Court issued a decision that largely upheld the Illinois Interchange Fee Prohibition Act (IFPA), allowing Illinois to ban interchange fees for the tax and tip portion(s) of transactions. Judge Kendell also did side with financial institutions on the data use provision, which would ban financial institutions and card networks from reviewing aggregated transaction data for the purpose of detecting fraud or for administering reward programs.

Following this decision, America’s Credit Unions and the Illinois Credit Union League (ICUL) told the industry that they intended to appeal this decision, and they did.

Where is the case now?

The case is now on appeal before the U.S. Court of Appeals for the Seventh Circuit. The appeal filed by ICUL, America’s Credit Unions and other trade groups outlines why the IFPA is preempted by federal law and how it would illegally restrict how financial institutions may receive compensation for providing financial services.

America’s Credit Unions and ICUL ask the appeals court to reverse the District Court’s decision. They also ask the court to remand the case with instructions to enter a permanent injunction blocking enforcement of the IFPA’s interchange fee prohibition and data usage limitation provisions for credit unions and other financial institutions.

The Illinois Attorney General also recently filed a reply brief in the IFPA appellate case. In their brief, the Attorney General asked the appellate court to uphold the lower court’s decision that prohibits the charging of interchange fees on the tax and tip portion of transactions and to reverse the decision on the data use provision.

America’s Credit Unions and ICUL are working on a reply and responsive brief, which is due April 17.

What happens on July 1?

If the Illinois Assembly does not pass an extension and the court does not act to extend the deadline for enactment, the IFPA will go into effect on July 1 of this year. After July 1, when a member of one of our Michigan credit unions travels to Illinois and makes a purchase, we will be unable to collect interchange on the tax or tip portion of that transaction. As a result, financial institutions of all sizes will need to track the state and local sales taxes applicable to purchases made in Illinois. This includes excise taxes such as a gas tax that are built right into the cost rather than charged separately. If this goes into effect, there will be new procedures that need to be developed along with additional training for team members to ensure they are able to receive, evaluate and audit the documentation that merchants provide on these transactions. Furthermore, there are penalties per transaction for non-compliance with the IFPA of $1,000. The hope is that there is some action taken prior to July 1 that extends out that deadline another year to account for the significant changes that will need to be implemented at all levels of the payment ecosystem.

To sum it up…

This issue is still making its way through the legal system, and it is likely that it will be a while before we see any real resolution in this case. However, credit unions should start to prepare for how to comply with the IFPA if the July 1, 2026, effective date does hold because the penalties associated with non-compliance are costly. We will continue to keep you all updated as we know more and hopefully, we will see an effort to extend the effective date in light of the pending litigation.

As always, this article is intended for general information only and does not constitute legal advice. If you have any questions about this topic and/or possible implications, you should contact your attorney for advice.

Hope to see you next time when we take a second to break down another trending legal topic!

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