Amici respectfully submit this brief in support of Plaintiffs’ motion for a preliminary injunction on the ground that the Illinois Interchange Fee Prohibition Act (“IFPA”) is preempted by federal law and will do tremendous and irreparable damage to the debit and credit payment systems, banks, and consumers if not enjoined. Amici believe this brief will aid the Court in understanding the workings of those card systems, the relevant regulatory structure, and why the IFPA is so harmful to the participation of banks in the debit and credit card systems.
Background
Properly functioning national credit and debit card payment systems are crucial to the modern American economy. In 2021 alone, Americans used credit and debit cards in 157 billion transactions amounting to $9.43 trillion in total transaction value.[1] From these systems, consumers benefit from the ability to make electronic purchases and withdraw money anywhere in the world easily and safely with the push of a button or the swipe or tap of a card, to use and build credit on everyday purchases, and to earn rewards based on their spending on credit or debit cards. Merchants benefit from the increased sales volume, reduced operating costs, increased customer reach, fraud protection, and simplicity that card payments provide relative to cash or checks, in addition to the greater certainty and immediacy of card payments compared to checks.
In exchange for card issuers’ role in providing these services, maintaining the card systems, providing related functions such as customer support, communication, and billing, and absorbing certain fraudulent or disputed card transactions, card issuers receive an “interchange fee,” which is an amount on each transaction that usually comprises a combination of (i) a base amount and (ii) a percentage of the value of the transaction. These fees are essential to card issuers’ operations of the card systems; this year, interchange fees account for a median of 2.6% of total operating revenue and 12.62% of non-interest income at large banks.[2]
Unsurprisingly given the nationwide nature and importance of these systems, states have, until now, never enacted legislation usurping the regulation of these large and crucial systems from the federal government. That all changed, however, on June 7, 2024, when Illinois enacted the IFPA, which purports to (i) prohibit credit and debit card issuers (including national banks), payment card networks, acquirer banks (including national banks), and processors from receiving or charging an Illinois merchant any interchange fees on the gratuity and state and local tax portions of the transactions (“Interchange Fee Restriction”) and (ii) prohibit those same entities from using transaction data from purchases made with cards in Illinois for purposes other than to process the transactions themselves or as otherwise “required by law” (“Data Usage Prohibition”). 815 Ill. Comp. Stat. 151/150‑10(a), 15(b).
This Court should enjoin the Defendant from enforcing this aberrant law as preempted by federal law. As explained below, Congress, through the National Bank Act (“NBA”), has determined to preempt state laws that seek to limit national banks in processing card payments, receiving fees, and using card payment data for their operations. This in turn means that the IFPA also cannot be enforced against state-chartered banks because state and federal law extend the benefits of national bank preemption to state-chartered banks. Congress has also preempted state laws restricting national or state banks’ ability to receive debit interchange fees through the Durbin Amendment to the Electronic Fund Transfer Act (“EFTA”).
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[1] Fed. Rsrv. Bd., The Federal Reserve Payments Study: 2022 Triennial Initial Data Release (last updated June 24, 2024), https://www.federalreserve.gov/paymentsystems/fr-payments- study.htm.
[2] These figures are drawn from year-to-date data available on S&P Global Capital IQ’s “Regulated Depositories (US)” tool for large banks subject to federal debit interchange fee limits under the Durbin Amendment. Amici will gladly provide this data to the Court if helpful.
