Court Issues Second Ruling on Illinois Credit Card Fee Capping Law: Out-of-State Banks Exempt, Credit Unions Not So Lucky

INTRODUCTION

The Court in the U.S District Court for Northern District of Illinois Eastern Division issued a second Order in the case Illinois Bankers Association et al. v. Kwame Raou ruling that the Interchange Fee Prohibition Act (“IFPA”), an Illinois state law restricting credit card fees and transaction data, is preempted by 12 U.S.C. Section 1831a(j) which regulates out-of-state banks, however the IFPA is not preempted by the Federal Credit Union Act (“FCUA”).

The new Order stems from Plaintiffs’ suit to enjoin implementation of the IFPA arguing it is preempted by various federal laws. The result of which being a December 20, 2024 Order from the Court ruling IFPA preemption by the National Bank Act (“NBA”) and the Homeowners Credit Loan Act (“HOLA”), however the major card networks, such as Visa and Mastercard, had no valid claims of preemption. For more details on the court’s initial ruling, read our blog article of the first order [here].     

FEDERAL CREDIT UNION ACT

Plaintiffs argue IFPA is preempted by various FCUA terms authorizing credit unions to loan, contract and issue lines of credit to its members. Additionally, FCUA language states the Act preempts “any state law purporting to limit or affect” credit union loans and lines of credit. The Court discusses various types of preemption, however, ultimately analyze the client claims as a conflict. The standard for “conflict” preemption is that “it would be impossible…to comply with both state and federal law or when state law constitutes and “obstacle”. Finally, they argue the National Credit Union Administration (“NCUA”) has the exclusive authority to regulate rates, repayment and other terms of repayment. The Court rejects these arguments stating simply the IFPA regulates credit union’s ability to collect fees on credit and debit card transactions from merchants, while the FCUA preemption statute regulates fees charged to members for initial lines of credit. The Court concludes Plaintiff failed to demonstrate it would likely prevail on its claim for IFPA preemption by FCUA.

12 U.S.C. SECTION 1831A(J)(1)

Plaintiffs also claim part of the Riegle-Neal Interstate Banking and Branching Efficiency Act (“RIBBE”) preempts IFPA. The RIBBE simply requires application of state law to out-of-state banks be equal to that of national banks in that state. Since the Court already ruled NBA preemption of IFPA for national banks in Illinois, RIBBE requires the same treatment as to out-of-state banks. The plain language of the statute supported this interpretation as well as prior case law interpreting RIBBE. Therefore, the Court concluded out-of-state banks would likely prevail on their preemption claim under RIBBE and enjoined application of IFPA as to those banks.

CONCLUSION