Illinois merchants scored a big victory late Tuesday in their battle for interchange relief as United States District Court Judge Virginia Kendall upheld the Illinois Interchange Fee Prohibition Act.
The decision, which comes after more than a year of legal wrangling, means the IFPA will go into effect July 1, a year later than originally intended. Since the measure’s passage in 2024, banking organizations have sought a permanent injunction against it. Prior to her final ruling, Kendall had issued a preliminary injunction against the IFPA in December 2024.
The law exempts Illinois merchants from paying interchange on sales tax and gratuities linked to credit and debit card transactions. In exchange, the state will cap what merchants earn for collecting sales tax at $1,000 per month.
Kendall’s ruling shot down plaintiffs’ arguments that federal banking laws, such as the National Banking Act, supersede state laws regarding banks’ ability to levy fees, such as card interchange. Kendall’s ruling stated that, while the IFPA is “novel” and “no other state has an equivalent to the IFPA,” all parties agree that issuers and acquirers do not set interchange, so the IFPA “does not directly regulate banks.” Kendall surmised that it is “the payment card networks, and not the banks, doing the actual work of [interchange] fee setting and charging” and that banks “only have a passive role in the rate-setting.”