CHICAGO (WGEM) – An Illinois law banning credit card companies and banks from charging swipe fees on taxes and tips is on hold.

Judge Virginia Kendall, a federal judge in the U.S. District Court for the Northern District of Illinois, issued a preliminary injunction this past Friday preventing the state from enforcing the Interchange Fee Prohibition Act on nationally chartered banks and federal savings associations.

The law was passed as part of the state’s fiscal year 2025 budget. Illinois Gov. JB Pritzker (D) signed it into law in June. It’s set to take effect July 1, 2025.

The American Bankers Association and the Illinois Bankers Association (IBA) are leading a lawsuit saying the Interchange Fee Prohibition Act violates federal law.

“There are laws that are issued by the U.S. Congress, the National Bank Act and the Homeowners Loan Act, that established that national banks, federal savings associations that are chartered under those federal laws cannot be subject to Illinois laws like this,” said IBA Executive Vice President and General Counsel Carolyn Settanni.

Kendall found the IBA “demonstrated likelihood of success” in their arguments as the case moves forward that the state cannot impose the law on nationally chartered banks or federal savings association. She did not, however, include credit card companies or banks chartered in Illinois. That means, as of right now, the state can enforce the law on those institutions starting next July.

“Now the focus is squarely on the credit card companies. That veneer has now been peeled away and they’re going to have to answer now for their actions,” said Illinois Retail Merchants Association (IRMA) President and CEO Rob Karr.

Karr supports the new law and is encouraged by the ruling.

Settanni said the IBA hopes to eventually expand the injection to include all banks and payment networks, which includes credit card companies.

She also said the new law would be impossible to comply with and create chaos.

Karr disagrees. He argues payment systems can make it work. He also believes it will save money for small business and consumers.

Both sides agree the case is still in its early stages. Kendall has not heard formal arguments on the merits of the case.

Copyright 2024 WGEM. All rights reserved.