Update on Interchange Litigation in Illinois

Punxsutawney Phil may be calling for more winter, but on the litigation front, things are warming up quickly. In this edition of Take a Second, we take a closer look at a recent Illinois court decision with significant implications for interchange. As more states consider their own interchange legislation, this case could influence not only what happens in Illinois, but what lawmakers pursue across the Midwest—and potentially nationwide. Let’s break down what happened and why it matters.

What are the facts?

In 2024, the Illinois legislature passed the Interchange Fee Prohibition Act (IFPA). The IFPA
prohibited financial institutions, payment networks and others from charging or collecting
interchange fees in Illinois on the tax or tip portion of any transaction (debit or credit). As we all know, it’s nearly impossible to distinguish what part of a transaction is the tax or tip portion without separating or itemizing the transaction under the current process. As a result, this new law is estimated to require millions of dollars in investment in new automated systems just to implement.

The IFPA also contains a data usage limitation provision which requires all entities in the
transaction (other than merchants) to “not distribute, exchange, transfer, disseminate, or use the electronic payment transaction data except to faciliate or process the electronic payment transaction or as required by law.”

In August of 2024, the Illinois Credit Union League, America’s Credit Unions, American Bankers Association and Illinois Bankers Association filed a challenge to the newly enacted law that was set to become effective July 1, 2025. In the challenge filed, the groups argued that the IFPA was preempted by federal laws including the National Bank Act, Home Owner’s Loan Act and Federal Credit Union Act. Arguing that the new Illinois state law unlawfully interfered with the powers federally granted to financial institutions to manage card operations, collect fees and to process transactions. The other argument that was made challenged the data usage limitation provision once again arguing federal preemption since this would limit the power that financial institutions already have in carrying out their everyday business of providing financial services.

The General Assembly in Illinois granted an extension of the compliance date from July 1, 2025, to July 1, 2026, as a result of the pending litigation. Unless another extension is granted by the General Assembly or the Court stays the enactment, the IFPA is set to become effective in just a few short months.

Where are we in the legal process now?

Last week the Northern District Federal Court of Illinois issued their decision on litigation
challenging the IFPA. In the Courts’ opinion, Chief Judge Virginia Kendall put all financial institutions on equal footing in relation to the IFPA. The decision reversed the previously issued preliminary injunction which temporarily protected nationally chartered and out-of-state banks from having to comply with the law. The Court held that IFPA’s prohibition on the charging or collecting of interchange fees in Illinois on tax or tips is not preempted by federal law because the banks/credit unions aren’t the ones setting the fees. The Court also found that the challenge to the data usage limitation within the IFPA was valid, stating that “The IFPA’s Data Usage Limitation provision directly constrains these power.” Which
was a win for the financial services industry. While the Illinois financial institutions did not prevail preemption argument re interchange, the fight isn’t over yet as the co-plaintiffs have already stated that they will appeal this decision. More to come as this case continues to move through the appeal process.

So how does this have the potential to impact Michigan Credit Unions?

There are no coincidences in politics, which means that we are likely to see some form of
interchange introduced here in Michigan. While I do not think the threat is imminent as this challenge continues to play out in court, I would not count us out as a state that is targeted by proponents of this type of legislation. We’ve also seen interchange discussions happen on the federal level, so this is not purely a state level threat. Continuing to educate our lawmakers in Michigan and D.C. on the harm/impact of interchange legislation on financial institutions and the consumers they serve will be pivotal throughout 2026. The other impact to be considered here is for those of us and our members who visit Illinois and use our credit/debit cards to make purchases there. Or for any out-of-state members who live in Illinois, and the impact that may have on them. Keeping up on this issue as it continues to play out in the courts is crucial.

To sum it up…

The outcome of this case will likely impact what type of interchange legislation is introduced at the state level as legislatures are likely waiting to see what the courts ultimately decide before moving forward. We will continue to monitor the appeals process on this case and provide updates as they are available. Keep educating lawmakers on the impact that interchange will have on your credit union and your credit union members any chance you get, whether that be in Lansing or Washington, D.C. it continues to be vitally important.

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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