On August 15, several banking and credit union associations sued the Illinois Attorney General to prevent the state from implementing the Illinois Interchange Fee Prohibition Act (the “Act”). As covered by InfoBytes, the Governor of Illinois signed the Act into law on June 7 and it will take effect on July 1, 2025. The Act will ban credit card issuers and networks from charging or receiving “interchange fees” on the tax or gratuity of a transaction.

Under current payment card systems, a merchant’s bank (the acquiring bank or acquirer) pays the consumer’s bank (the issuing bank or issuer) an interchange fee on the full amount of the transaction (including taxes and gratuity). Because the Act will prohibit interchange fees applied to taxes and gratuity, merchants would be required to either disaggregate taxes and gratuity from the total charge or submit a report of these totals to the acquirer.

Plaintiffs contended these changes to the payment card infrastructure would be too burdensome and that implementing them by the effective date “would likely be impossible” and that it would hinder routine bank processes such as fraud detection and anti-money laundering compliance. They claim the Act violates multiple federal statutes, including the National Bank Act and the Federal Credit Union Act, and cannot be enforced against national or state-chartered banks, savings institutions or credit unions. In their prayer for relief, the plaintiffs asked the court to declare the Act preempted, unconstitutional and invalid, and are seeking a preliminary injunction to halt the law’s implementation while the court reviews the case, emphasizing the potential chaos and confusion it could cause for consumers and businesses.