(The Center Square) – Illinois’ controversial Interchange Fee Prohibition Act has taken another turn in court.
The law prohibits a credit card holder’s bank from charging or receiving interchange fees on portions of transactions, including taxes and gratuities. It is scheduled to go into effect July 1.
A judge has ruled that financial institutions chartered outside Illinois that conduct business within the state do not have to comply with the law. The judge, however, did not include Illinois chartered financial institutions, credit unions, federally chartered credit unions, and the card networks in her ruling.
“We strongly believe that applying any part of this law to any party in the payment system, a bank or credit union, card network is fundamentally flawed,” said Ben Jackson, vice president of government relations with the Illinois Bankers Association (IBA) to The Center Square.
Banking groups filed a lawsuit last August challenging the state law on the grounds it superseded federal regulations on banks. They argue the law forces banks and credit card companies to implement costly new computer systems to differentiate between the transaction, tax and tip.
Supporters of the law, namely the Illinois Retail Merchants Association, argued it will be an easy transition as some laws already prohibit interchange fees on certain purchases. Jackson disagrees.
“There’s a lot of confusion and there doesn’t seem to be any clear answer on how to implement this,” said Jackson. “Part of the reason for that is because the law is so vague and there really isn’t a way to flesh out how this would work.”
Since its passage last June, the Interchange Fee Prohibition Act has garnered national attention as Illinois is the only state to have passed a law regulating interchange.
“The reason for that is that it is difficult, if not impossible, to accomplish within the very interconnected, highly sophisticated, highly secure payment network,” said Jackson.
Another hearing on the lawsuit is scheduled for March 6 in Chicago.
