The American Bankers Association, Illinois Bankers Association and other trade groups are suing to strike down a new Illinois law banning financial institutions from charging interchange fees on tips and taxes.
The lawsuit, filed Aug. 15 in the U.S. District Court for the Northern District of Illinois, came after the Illinois General Assembly passed a budget earlier this year that banned the collection of interchange fees on a number of transactions, including taxes and tips. The law was considered part of a larger compromise with retailers that saw a separate tax exemption eliminated under the state budget bill, according to American Banker. The provision was also intended to pass off the cost of the elimination to banks and payment processors instead of consumers.
The trade groups say the law violates the National Bank Act — which grants the federal government authority over national banks — and the Federal Credit Union Act. Federal law already bans the state from applying the law to Illinois savings banks or associations chartered by other states, according to the groups. They allege the law will benefit large retailers at the expense of small businesses and consumers.
“This court’s intervention is urgently needed,” the groups wrote in the complaint. “Without injunctive relief, this scheme threatens not only to impose substantial and unrecoverable costs and risks on these entities and other participants in the payment system, but also to create chaos throughout the economy.”
Other groups suing the state include America’s Credit Unions and the Illinois Credit Union League. The groups are seeking a preliminary injunction halting implementation of the law while the court considers the case. The budget bill is set to take effect July 1, 2025.
