On May 6, the parties filed simultaneous supplemental briefs in litigation challenging the Illinois Interchange Fee Prohibition Act (IFPA), which remains on appeal before the 7th Circuit, while the OCC and merchant trade associations separately moved for leave to file supplemental amicus briefs. The briefs address the OCC’s April 24 interim final rule and interim final order and respond to the 7th Circuit’s subsequent April 29 order for the parties to file supplemental briefing after the OCC notified the court of the actions via a Rule 28(j) letter (covered by InfoBytes here). The IFPA is scheduled to take effect on July 1, and both the interim final rule and interim final order are scheduled to take effect one day earlier, on June 30. Oral argument remains scheduled for May 13.

In their brief, the plaintiff trade associations argued that the OCC’s interim final rule amending 12 CFR 7.4002 “put[s] the question beyond doubt” by expressly authorizing national banks to charge interchange fees through payment networks and to rely on default rates set by third parties, eliminating the basis for the district court’s ruling (covered here), which had found the “thrust” of the prior regulation was “not to protect fees centrally established by a third-party company.” The plaintiffs further argued that the OCC’s preemption order “conclusively resolves” the preemption issues or, at a minimum, is entitled to “great weight” under longstanding precedent affording deference to the Comptroller’s judgment on the scope of national bank powers. The plaintiffs also contended that the OCC’s analysis reinforces their separate Federal Credit Union Act preemption argument and supports extending any injunction to other payment-system participants.

The Illinois attorney general argued that both OCC actions are procedurally invalid and should be disregarded. The attorney general contended the OCC failed to comply with the APA’s notice-and-comment requirements and that the “impracticability” exception does not apply because the OCC had nearly two years to act following the IFPA’s enactment. The brief asserts that the rule conflicts with 12 U.S.C. § 25b(h)(2), which provides that the National Bank Act (NBA) cannot be construed as preempting state law as applied to subsidiaries, affiliates or agents of national banks.

As to the preemption order, the attorney general argued that the Comptroller did not follow the procedural requirements of § 25b(b)(6) and that the OCC’s assertion that the IFPA is not a “State consumer financial law” — its basis for avoiding § 25b’s procedures — is irreconcilable with the OCC’s own prior invocations of § 25b in this litigation. The attorney general further argued that even if the interim final rule is valid, the IFPA does not substantially interfere with national bank powers because it “exempts a fraction of a transaction from these fees” and the plaintiffs “offered no evidence that this limit on interchange fees would make their receipt impractical or cost prohibitive.” Finally, the attorney general argued that even setting aside procedural invalidity, the preemption order is entitled to no deference because the order is largely premised on the interim final rule, which the attorney general contends is itself invalid.

The OCC moved for leave to file a supplemental amicus brief, arguing that the court should find the IFPA preempted by the NBA and the Home Owners’ Loan Act on statutory grounds, citing the 2nd Circuit’s May 5 decision in Cantero v. Bank of America, which found on remand that New York’s interest-on-escrow law was preempted by the NBA. In the alternative, the OCC urged the court to abstain from ruling on whether its existing regulations preempt the IFPA, arguing that any such opinion would be “advisory in all practical respects” because the actions would independently preempt the IFPA before it goes into effect.

Separately, merchant trade associations moved for leave to file their own supplemental amicus brief arguing that the OCC’s actions are procedurally and substantively invalid, that the amended regulation retains a requirement that fees “be arrived at by each national bank on a competitive basis” that interchange fees do not satisfy, and that neither the rule nor the order preempts the IFPA as applied to card networks. Subsequently, the plaintiffs filed a brief opposing the merchant amici’s motion but did not oppose the OCC’s participation, noting the OCC is “differently situated” because its actions are the subject of the supplemental briefing. On May 7, the court granted the OCC’s motion for leave to file its supplemental amicus brief but denied the merchant trade associations’ request to file theirs.

The plaintiffs also filed a Rule 28(j) letter notifying the court of the 2nd Circuit’s Cantero decision, arguing that it supports preemption here because the IFPA similarly affects national banks’ price-setting authority and because the decision confirms that preemption does not require factual proof of a law’s “real-world effects.” Subsequently, the Illinois attorney general filed a response to the plaintiffs’ Cantero 28(j) letter, arguing the decision does not support preemption because the NBA does not expressly authorize banks to pass on interchange fees set by card networks (unlike the express lending power at issue in Cantero), no federal law extensively regulates interchange fees, and the 2nd Circuit’s approach of not requiring record evidence of a law’s real-world effects ignores that “practical” effects determine whether a state law significantly interferes with national bank powers.