Judge expands credit-card fee exemption for Illinois credit unions

A federal court ruling issued on Tuesday has re-ignited a longstanding dispute over whether tips and tax can be excluded from the calculation of interchange merchants pay on credit-card transactions in Illinois after the state adopted the Illinois Interchange Fee Prohibition Act. The act is slated to take effect on July 1, 2027.

Judge Virginia Kendall of the Northern District of Illinois expanded an existing injunction to cover national credit unions. The earlier exemption had applied to national banks, federal savings and loans, out-of-state chartered banks and card networks.

State estimates indicate roughly 235 state-chartered banks and nearly 200 state-chartered credit unions operate in Illinois.

The Merchants Payments Coalition, which lobbies for retailers, issued a strong rebuke on Wednesday. “The NCUA has clearly exceeded its authority, and we expect the court will be overruled in an appeal or subsequent case,” said Doug Kantor, an MPC executive committee member. “States can and should protect their local businesses and consumers from abusive, unfair practices by credit unions and banks.”

Interchange refers to the percentage of a card transaction that merchants pay to issuing banks, typically around 2% to 3% of the sale. Critics argue the fee inflates merchants’ costs and adds to overall price pressures for shoppers.

The MPC estimates the law could cut merchants’ expenses in Illinois by about $500 million a year.

Opponents, including processors, banks and lobbying groups, contend the law distorts the economics of card transactions and ultimately harms cardholders. They continue to seek a full repeal.