Joining together with the Illinois Credit Union League and other trades, America’s Credit Unions filed a brief Friday in the U.S. Court of Appeals for the Seventh Circuit as part of efforts to overturn the harmful Illinois Interchange Fee Prohibition Act (IFPA). The appeal outlines why the IFPA is preempted by federal law and would illegally restrict how financial institutions may receive compensation for providing banking services.
The legislation is scheduled to take effect on July 1. It would ban financial institutions, including credit unions, from charging or receiving interchange fees in Illinois on the portion of a debit or credit card transaction attributable to tax or gratuity. America’s Credit Unions and ICUL challenged the law, but it was largely upheld in a February decision. The organizations filed an appeal the following week.
The brief filed Friday states the IFPA “significantly interferes with federal powers in multiple ways” by directly restricting how financial institutions may receive compensation for services and is therefore preempted.
“[C]omplying with it imposes regulatory requirements so out of step with how the system functions that it will, as the District Court acknowledged, cause costs that are ‘undeniable’ and ‘staggering,’ with ‘business-ending consequences for some members of the market,’” the brief reads, adding “as federal instrumentalities, federal credit unions are entitled to exercise their federally granted powers free from prevention or significant interference by state law, just as national banks and Federal savings associations are.”
The brief notes that regardless of which party in the payment system sets the fees, the powers to offer credit and debit cards to banking customers—and receive compensation for doing so—remain authorized by federal law.
The Federal Credit Union Act also states that the authority to provide a service includes the authority to charge for it and expressly permits credit unions to earn income from activities incidental to their business.
The brief calls for the court to reverse the previous decision on data usage provisions that did not extend preemption to those financial institutions chartered by other states, as this discriminates against interstate commerce.
America’s Credit Unions and ICUL request the appeals court reverse the District Court’s decision and remand with instructions to enter a permanent injunction against enforcement of the interchange fee prohibition and data usage limitation provisions of the IFPA for credit unions and other financial institutions.
A recent Compliance Blog post details what IFPA implementation would mean for credit unions starting July 1.