A federal judge on Tuesday added federal credit unions to the entities exempt from Illinois' Interchange Fee Prohibition Act, expanding the scope of an injunction issued in June that already exempted banks and payment networks challenging the law. Chief Judge Virginia M. Kendall of the U.S. District Court for the Northern District of Illinois said the decision was straightforward, writing that "the federal government has exercised that authority within its statutory bounds, and the Court is obligated to respect it." The ruling brings federal credit unions in line with the financial entities discussed in the June ruling.
The underlying lawsuit centers on the Illinois Interchange Fee Prohibition Act, which would ban firms from charging swipe fees on the sales tax and gratuity portions of charges. The law has pitted trade groups representing merchants against the financial industry as a growing number of states attempt to block interchange fees on portions of transactions. Banks and other card issuers say the fees, often around 2% to 3% of a transaction and set by card networks like Visa or Mastercard, are necessary to pay for fraud prevention, transaction processing costs, and credit card rewards.
The expansion follows a June interim final rule from the National Credit Union Administration that asserted federal preemption of Illinois' law. That rule came after an Office of the Comptroller of the Currency rule issued in April that similarly asserted federal preemption. Scott Simpson, president and CEO of America's Credit Unions, said the ruling "validates" the view that federal credit unions are exempt from state limits on swipe fees, though he noted the group is continuing its legal challenge to ensure all credit unions are protected.
Kendall wrote that the NCUA's expansion of the preemption provision "stands on shakier ground" because the underlying law authorizes federal credit unions to extend lines of credit to their members, while the revised regulation removed that limitation and asserted preemption authority without regard to whether the line of credit involved a credit union member. The ruling could return to the Seventh Circuit, which previously remanded the case after the OCC's intervention.