The Illinois attorney general (AG) recently filed a brief defending the Illinois Interchange Fee Prohibition Act (IFPA) in an appeal arising out of litigation captioned Illinois Bankers Association v. Raoul. The AG asked the Seventh Circuit to affirm a lower court’s decision to uphold the IFPA’s ban on certain interchange fees, also known as card “swipe” fees. The industry argues that the law is unconstitutional or inconsistent with federal law. The AG also asked the Seventh Circuit to overturn the lower court’s decision that the act’s data usage limitation is preempted by federal law.
The IFPA — initially passed in June 2024 and set to become effective on July 1, 2026 — met near-immediate opposition. Several industry trade groups, including the American Bankers Association and Illinois Bankers Association, challenged the act’s interchange fee prohibition and data usage limitation in federal court shortly after its passage, naming Illinois AG Kwame Raoul as the defendant. The plaintiffs have argued that these provisions of the act violate federal law, are preempted by national banking regulations, and will disrupt the national payments system if allowed to proceed. There are two primary arguments:
- First, the industry challenged the act’s prohibition on banks, payment networks, and other entities that facilitate, service, process, or manage electronic payments from receiving or charging an interchange fee on the tax or gratuity portions of electronic payment transactions as unconstitutional.
- Second, the industry argued that the IFPA restricts banks and other entities from using transaction data for purposes other than processing the transaction, except as required by law, and that this restriction is preempted by federal banking regulations.
On February 10, 2026, the U.S. District Court for the Northern District of Illinois issued a mixed ruling in the case, finding that the IFPA’s prohibition on interchange fees is not preempted by federal law but that the data usage limitation is preempted. Specifically, the court found that:
- First, with respect to interchange fees, the court held that the fees at issue are set by card networks rather than banks, such that placing prohibitions on these fees does not directly regulate banks or directly intrude on federally authorized banking powers.
- Second, with respect to data usage, the court determined that prohibiting national financial institutions from using transaction data for purposes other than facilitating or processing payments significantly interferes with their federally authorized data-processing powers.
Consistent with its holding, the court permanently enjoined enforcement of the IFPA’s data usage limitation against national banks, federal savings associations, federal credit unions, and out-of-state banks, in addition to other entities participating in electronic payment transactions when they are acting to facilitate those institutions’ powers.
The Seventh Circuit has set a briefing deadline of May 1, 2026, with oral arguments expected later that month. A decision by the Seventh Circuit upholding the IFPA’s interchange fee prohibition, data usage limitation, or both, will create substantial challenges for financial institutions and payment networks operating in Illinois. As plaintiffs have stated in their filings, if the IFPA’s restrictions become effective, they will likely impact how businesses operate in Illinois, introduce disruptions to the national card payment infrastructure, and inhibit routine bank processes that rely on transaction data, such as fraud prevention and risk management. In addition, compliance with the act will be imperative, as violations of the interchange fee prohibition can result in a $1,000 civil penalty per transaction and violations of the data usage limitation constitute violations of Illinois’ Consumer Fraud and Deceptive Business Practices Act. Financial institutions should monitor this case and, if the IFPA is upheld, be prepared to update their processes and procedures to comply with the act before the July 1, 2026, effective date.
