Chicago, IL (CAPITOL NEWS ILLINOIS) – A law that would make Illinois the first jurisdiction in the world to ban financial institutions from charging “interchange fees” on the tax and tip portions of debit and credit card transactions finally got its day in court this week nearly 18 months after its passage.

U.S. District Judge Virginia Kendall’s ruling — expected in the coming weeks — will determine the legality of the “Interchange Fee Prohibition Act,” which was folded into Illinois’ Fiscal Year 2025 budget package in May 2024 by Democrats who control the General Assembly.

The move was championed by the Illinois Retail Merchants Association, which positioned the law as pro-consumer, as retailers often pass the fees onto customers. But other business groups, which are typically aligned with IRMA, balked at the idea, claiming it would cause “credit card chaos.”

Nearly a year ago, Kendall issued a preliminary injunction preventing the law from applying to federally chartered banks, later extending it to out-of-state banks that operate in Illinois, after banks and credit unions sued over the law in August 2024.

But credit unions, Illinois-based banks and credit card companies are not covered by the judge’s ruling, so lawmakers this past spring delayed the IFPA’s effective date from July 1, 2025, for another year, giving the case time to play out in court.

Read more: Amid court battle, lawmakers look to push back ‘swipe fees’ ban | Judge declines to extend ‘swipe fee’ injunction to credit unions, applies it to out-of-state banks

Anticipation for the ruling goes beyond just the parties in the case; in the last year, 22 other state legislatures have considered — and rejected — similar bans on credit card swipe fees. But Illinois Bankers Association Executive Vice President Ben Jackson told reporters Wednesday that the legal fight isn’t the only avenue financial institutions are counting on.

“Our legislative allies — and there are many of them … — are really very eager to move forward with a repeal effort this spring,” he said.

Oral arguments

The judge heard two hours of highly technical arguments Wednesday as she prepares to rule on the financial institutions’ motion for summary judgment. In their original lawsuit, plaintiffs argued the law would “upend the intricate and carefully calibrated global systems for debit and credit card purchases.” 

But Wednesday’s arguments focused more on questions of law, including whether the state of Illinois exceeded its authority by adopting the IFPA.

Charlotte Taylor, an attorney representing the Illinois Bankers Association, said financial institutions would suffer significant reductions in the amount of revenue received from Illinois retailers, restaurants and other establishments in the hospitality industry. She argued that “interchange is compensation because they are taking on the risk of fraud.”

“I don’t know of an agency relationship where the agent says, ‘Here’s what you get paid, here’s what it’s gonna be, take it or leave it,’” Taylor argued.

But Darren Kinkead, an lawyer in Illinois Attorney General Kwame Raoul’s office, argued banks are “still getting plenty of interchange fees.”

“They are not doing any work for which they are not being compensated,” he said.

Furthermore, Kinkead argued that the amount of interchange fees financial institutions would be able to collect would only be reduced by about 9 to 10%.

“Nine percent of anything is not extreme,” he said. “Like we’ve discussed before, 91% is still an A.”

But Taylor rebuffed Kinkead’s argument.

“Imagine you’re making a 5% profit, which is a reasonable profit margin for a business, then suddenly 10% of that profit is taken away,” she said. “Now you’re operating at a 5% loss.”

Mithun Mansinghani, an attorney representing the Illinois Retail Merchants Association, circled back to opponents’ claims of “credit card chaos” in his “friend-of-the-court” arguments Wednesday.

“These card networks — they operate in like 200 different countries,” he said. “They have to comply with the laws of those 200 different countries and different states.”

IRMA requested the interchange fee ban during May 2024 budget negotiations to mitigate the effects of Gov. JB Pritzker’s push to cap a monthly sales tax deduction claimed by retailers at $1,000 to generate $101 million annually for state coffers. 

Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.