Credit unions get reprieve from Illinois interchange law

The scope of a controversial Illinois law exempting tax and tips amounts from card interchange fees just got a bit narrower. A U.S. district court in Illinois ruled Sept. 22, 2026, that federally chartered credit unions are not bound by the Illinois Interchange Fee Prohibition Act.

Federally chartered commercial banks, federal savings banks and certain out-of-state state-chartered banks have also been exempted from the law by regulatory rulings upheld by the court earlier this year.

The National Credit Union Administration, the regulator that oversees federal credit unions, recently issued a rule clarifying its authority over non-interest charges and fees and asserted that federal law preempted application of the IFPA to federally chartered credit unions.

Chief Judge Virginia M. Kendall of the U.S. District Court for the Northern District of Illinois agreed. As it stands now, Illinois-chartered financial institutions are among the institutions that remain subject to the IFPA's interchange fee restriction.

Law has faced challenges

Illinois enacted the IFPA in 2024, becoming the first state to prohibit interchange fees on the portion of credit and debit card transactions attributable to sales taxes and gratuities. The measure has drawn opposition from banking, credit union and payments industry groups, which challenged the law in federal court.

The litigation has steadily narrowed the law's reach. On June 1, Kendall issued a permanent injunction preventing Illinois from enforcing the interchange fee limitation against national banks, certain out-of-state state-chartered banks, federal savings associations and payment card networks. At that point, however, federal credit unions remained subject to the restriction.

That changed after the NCUA issued an interim final rule in June asserting federal preemption over state laws restricting the ability of federal credit unions to charge non-interest fees. Kendall's Sept. 22 ruling reconsidered the earlier decision in light of the NCUA action and extended the injunction to federal credit unions.

The IFPA was set to take effect July 1, 2026, but Gov. JB Pritzker signed legislation June 26 postponing implementation until July 1, 2027, giving the legal challenges more time to play out.

Will legislature get the message?

The Illinois Bankers Association, Illinois Credit Union League, American Bankers Association and America's Credit Unions hailed the court's decision in a joint statement.

"We welcome the latest order in our Illinois Interchange Fee Prohibition Act litigation extending the U.S. District Court's permanent injunction to federal credit unions in addition to all federally chartered financial institutions and payment networks.

"The order means that only certain state-chartered institutions, and especially those chartered in Illinois, would be forced to comply with the misguided law when it takes effect next July," the groups stated. "In light of the court's actions, state lawmakers should do the responsible thing and finally repeal IFPA and spare Illinois consumers and businesses from the payment chaos it would create."

The Sept. 22 ruling further limits the institutions subject to the IFPA, but litigation over the law and its ultimate reach remains unresolved.

Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.