Illinois to appeal the injunction shielding banks and card networks from its tax-and-tip interchange law

Illinois is taking its fight over interchange fees back to the appeals court. A court filing reported by the ABA Banking Journal on 14 October shows that the office of Attorney General Kwame Raoul intends to seek reversal of the injunction that blocks the state from enforcing the Interchange Fee Prohibition Act against much of the card industry. The American Bankers Association, the Illinois Bankers Association and the other trade groups that brought the case responded with a cross-appeal of their own. The law stops banks, card networks and others from charging or receiving interchange on the part of a debit or credit card transaction that is made up of sales tax or a tip. In June, District Judge Virginia Kendall issued a permanent injunction barring Illinois from enforcing it against national banks, federal savings associations, out-of-state state-chartered banks protected by federal law, and the payment card networks. She has since extended that injunction to federal credit unions. The appeal means the question of whether a state can carve tax and gratuities out of interchange will stay open for months. For merchants, the stakes are practical. If the state wins, part of every card sale in Illinois could fall outside interchange, which would lower costs for restaurants, fuel retailers and other businesses with high tax or tip shares. It would also require acquirers and issuers to identify the tax and tip amounts in each transaction. Until the appeal is decided, the injunction keeps the card networks and the largest groups of issuers outside the law's reach, so much of Illinois card volume is unaffected. Other states considering similar measures are likely to watch the outcome closely, since it will set an early marker for how far state interchange rules can go.