On November 12, a coalition of national and Illinois merchant trade associations filed two suits in the U.S. District Court for the District of Columbia challenging interim actions by the OCC and the NCUA that assert federal preemption of the Illinois Interchange Fee Prohibition Act (IFPA). The IFPA bars interchange fees on the tax and gratuity portions of electronic payment transactions. The complaint against the OCC challenges two actions: The first is the OCC’s interim final rule, which provides that national banks may charge non-interest charges and fees, including interchange fees, regardless of whether the bank or a third party sets them. The second is the accompanying interim final order, which concludes that federal law preempts the IFPA (covered by InfoBytes here). The complaint against the NCUA challenges the NCUA’s interim final rule, which takes a parallel approach for federal credit unions. In the rule, the NCUA stated that it adopted language substantially similar to the OCC’s and that the rule is intended to preempt state laws such as the IFPA (covered here).

In the OCC suit, the plaintiffs allege that the rule and order exceed the OCC’s authority under the National Bank Act (NBA), are arbitrary and capricious, and were issued without the notice and comment the APA requires. They contend that, because the IFPA applies only to fees that card networks set, it regulates “the business of card networks, not the business of banking,” and therefore does not meet the “prevents or significantly interferes” standard for preemption. The OCC had found prior notice and public comment impracticable because of the “regulatory confusion” created by the February district court ruling. The plaintiffs responded that the agency had nearly two years after the IFPA’s enactment to act. They further allege that the IFPA is a “State consumer financial law,” which the OCC determined it is not, and that the order therefore violates the NBA’s preemption procedures because it lacks the required “substantial evidence” on the record and was not issued by the Comptroller. In the alternative, they allege that the order skipped the notice and comment required by 12 U.S.C. § 43(a) without satisfying that provision’s safety-and-soundness exception.

In the NCUA suit, the plaintiffs allege that: (i) the rule exceeds the NCUA’s authority under the Federal Credit Union Act, which they contend grants the agency no preemptive power in this area; (ii) the rule is arbitrary and capricious; and (iii) the agency lacked good cause to skip notice and comment, which the NCUA attributed to the “abbreviated timeline” between the February district court ruling and the IFPA’s effective date. In a separate count, the plaintiffs seek a declaration that the amended regulation does not preempt the IFPA, contending that the provision addressing interchange fees contains no preemption clause and reaches only fees set “on a competitive basis,” not fees set by card networks. In both suits, the plaintiffs seek declaratory relief, vacatur, and injunctions against enforcement of each challenged action. Both cases were assigned to Judge Tanya S. Chutkan in the D.C. District Court.

The suits follow litigation brought by banking and credit union trade groups in the U.S. District Court for the Northern District of Illinois. On February 10, that court held at summary judgment that neither the NBA nor the Federal Credit Union Act preempts the interchange fee prohibition (covered here). After the 7th Circuit vacated that ruling in May for consideration of the OCC’s actions, the court held on June 1 that, under the OCC’s amended rule, the prohibition is preempted as to national banks, federal savings associations, and out-of-state state banks (covered here). On September 22, relying on the NCUA’s rule, the court extended the injunction to federal credit unions and reaffirmed that procedural APA challenges must be brought in a separate action against the agency (covered here). The plaintiffs cite that holding as the reason for the new suits. The Illinois attorney general’s appeal and the banking and credit union trade groups’ cross-appeal are pending before the 7th Circuit on an expedited schedule (covered here). The IFPA’s effective date has been delayed to July 1, 2027.