Seventh Circuit Resets Illinois Swipe-Fee Fight as July 1 Deadline Looms

The legal fight over Illinois’ first-in-the-nation swipe fee law is headed back to federal district court.

The U.S. Court of Appeals for the Seventh Circuit on Friday (May 8) vacated a lower-court decision in the challenge to the Illinois Interchange Fee Prohibition Act and remanded the case to the U.S. District Court for the Northern District of Illinois for further proceedings. The move cancels oral arguments that had been scheduled for Wednesday (May 13) and returns the case to the trial court just weeks before the law’s July 1 effective date.

The practical implication is that the card ecosystem has less certainty. Banks, credit unions, card networks, processors, acquirers and merchants are now waiting for the district court to reassess the case against a changed regulatory backdrop. The Office of the Comptroller of the Currency (OCC) has issued interim final actions concluding that federal law preempts IFPA as applied to national banks and federal savings associations. The law’s core provision would bar interchange fees on the tax and gratuity portions of credit and debit card transactions.

The case stems from U.S. District Judge Virginia Kendall’s February ruling in Illinois Bankers Association v. Raoul.

Kendall upheld the core swipe-fee restriction, finding that the law did not directly regulate national banks because payment card networks, not banks, set interchange fees. She reached the opposite conclusion on the statute’s data-use limits, permanently enjoining those provisions after finding they would interfere with federally authorized bank functions such as fraud monitoring, data processing and loyalty programs. Banking and credit union trade groups then moved quickly to the Seventh Circuit, which had fast-tracked the appeal in hopes of a decision before July.

The American Bankers Association, Illinois Bankers Association, America’s Credit Unions and the Illinois Credit Union League cast the remand as an opening to press their preemption arguments again in district court.

“As we have consistently argued, the Illinois Interchange Fee Prohibition Act conflicts with federal law, and recent regulatory actions only reaffirm that fact,” the groups said in a joint statement. The banking groups also urged Illinois lawmakers to repeal the statute, warning that implementation would create confusion for consumers, businesses and financial institutions.

Next, the district court will have to decide how much weight to give the OCC’s intervening preemption order and related rulemaking. The timeline remains compressed: the OCC order is effective June 30, one day before the IFPA is scheduled to take effect.

Whatever the district court does next is likely to move quickly back to the Seventh Circuit, with implications well beyond Illinois as other states consider similar swipe-fee limits.