Judge declines to extend ‘swipe fee’ injunction to credit card companies

[February 07, 2025]  By Ben Szalinski

A federal judge on Thursday declined to issue an injunction to stop an Illinois law that bans certain credit card fees from applying to credit card companies and Illinois banks.

Credit and debit card companies charge what are sometimes known as “swipe fees,” which are often paid by retailers, to process card transactions.

Lawmakers passed the Interchange Fee Prohibition Act last spring as part of the legislative package that enacted the state budget. It’s the first of its kind in the country and prohibits credit debit and card companies from charging fees on the tax and tip portions of credit and debit card transactions beginning July 1. The rest of the transaction, including the price of goods or services, would still be subject to the fees.

Banking groups filed a lawsuit in August challenging the state law on the grounds it superseded federal regulations on banks. Moreover, the bankers worried financial institutions don’t have the ability to comply with the law by July 1. They argued the law forces banks and credit card companies to implement costly new computer systems to differentiate between the transaction, tax and tip.

Supporters, namely the state’s largest retailer association, argued it will be an easy transition as some laws already prohibit interchange fees on certain purchases.

Federal Judge Virginia Kendall of the Northern District of Illinois issued a preliminary injunction in December preventing the law, once it takes effect, from applying to federally chartered banks. But on Thursday she declined to extend the injunction to credit unions and state-chartered banks. Her ruling did extend the injunction to out-of-state banks that operate in Illinois.

Financial institutions argued, and Kendall has so far agreed, that out-of-state banks now subject to the injunction are governed by federal law that can’t be superseded by state action. The injunctions are temporary, however, as the full case plays out.

“This ruling is a positive step forward, ensuring credit card companies and processers that unilaterally dictate swipe fees must comply with this law,” Illinois Retail Merchants Association CEO Rob Karr said in a statement. “By limiting swipe fees that can be charged on the tax and tip portion of transactions, Illinois will provide real relief to consumers and businesses who have long suffered under the opaque swipe fee payment structure.”

The new law was part of a deal made during budget negotiations last spring at the request of the state’s retailers.

State lawmakers capped a monthly sales tax deduction claimed by retailers at $1,000 to generate $101 million to fill a budget hole. In exchange and at the behest of IRMA, lawmakers passed the ban on swipe fees.

Kendall denied IRMA’s request at the end of January to be an intervening party in the case.

Leaders of banking organizations said Thursday they will continue to fight the law.

“Today’s ruling illustrates the fundamental flaws of this misguided state law that will inflict chaos on all participants in the Illinois payments system and the customers they serve,” Ben Jackson from the Illinois Bankers Association and Ashley Sharp from the Illinois Credit Union League said in a joint statement. “We will continue our efforts to ensure that all consumers, businesses and financial institutions are spared the mayhem IFPA will trigger.”

Another hearing on the lawsuit is scheduled for March 6 in Chicago.

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