The brief, filed yesterday, argues that the Illinois Interchange Fee Prohibition Act is “both bad policy and an unlawful interference with federally granted powers.” Federal officials say credit and debit card transactions are vital to the nation’s economy, and the fees financial institutions collect are “fundamental to safe and sound banking.”

These fees are intended to help protect against fraud, cover the costs of transaction processing and provide other valuable consumer services, the brief says.

The brief also claims the law could “trigger a domino effect of other states and localities enacting similar laws, thereby creating a fractured, highly inefficient and unworkable payment system that would materially affect interstate commerce.”

The American Bankers Association, one of the trade groups that filed the case, issued a statement praising the federal government’s support.

“We share the OCC’s view that the Illinois Interchange Fee Prohibition Act (IFPA) is an ‘ill-conceived, highly unusual, and largely unworkable state law that threatens to fragment and disrupt this efficient and effective system,’ ” an ABA spokesperson told Crain’s. “We appreciate the OCC’s decision to defend the dual banking system that has served our nation so well for so long.”

The law emerged after a state budget session this past spring where lawmakers decided to reduce the interchange fees, largely paid by merchants, on credit and debit card transactions to offset the impact of another law reducing revenue for retailers.

In that measure, state lawmakers aim to generate $100 million in revenue by reducing the amount of money merchants receive for collecting state and local sales taxes.

In the aftermath, the ABA and other trade groups representing banks filed a lawsuit to stop the law. They brought the case on behalf of major credit card processors and issuers, including JPMorgan Chase, Citibank, Wells Fargo, Mastercard and Visa, as well as smaller community banks and credit unions.

Bankers and credit unions are making similar arguments as the comptroller’s office and are seeking both a preliminary and permanent injunction, with the aim of preventing the law from going into effect. Oral arguments are set for Oct. 30.

The Illinois Retail Merchants Association has said banks are overstating the burden, arguing financial institutions have the ability to adjust to the new legislation. 

The group says banks are capable of separating taxes and tips from interchange fees, noting that these institutions are already prohibited from charging such fees on WIC or SNAP purchases at retail.