Merchant Groups Sue OCC, NCUA Over Rules Blocking Illinois Swipe Fee Law

By James Calloway

Interchange fees set by card networks total nearly $200 billion a year nationwide, and a merchant coalition says federal regulators broke the law to keep a slice of that flow — fees charged on sales tax and tips — alive in Illinois.

FMI – The Food Industry Association, the National Grocers Association, the National Association of Convenience Stores and the Illinois Retail Merchants Association filed a pair of lawsuits in U.S. District Court in Washington, D.C., challenging rules from the Office of the Comptroller of the Currency and the National Credit Union Administration. Those rules blocked Illinois' first-in-the-nation law banning credit and debit card swipe fees on sales tax and tips.

The suits argue the agencies exceeded their authority and violated the Administrative Procedure Act by issuing "interim final" rules without the customary notice-and-comment period, weeks before the Illinois law was to take effect. The merchants say nothing in the National Bank Act or the Federal Credit Union Act authorizes what the OCC suit calls "collusive and excessive fees on merchants that have no banking relationship with the financial institution charging those fees."

The Illinois law would save the state's merchants and their customers more than $500 million per year, the suit said. Fees on sales tax and tips are "particularly unfair," the merchants argue, because those funds pass through to governments and employees rather than staying with the merchant.

How did the Illinois law get stopped?

Illinois passed the Interchange Fee Prohibition Act in 2024. In February, U.S. District Judge Virginia Kendall rejected banks' arguments that the National Bank Act preempted the law. Her reasoning: swipe fees are set by card networks such as Visa and Mastercard, which are not banks.

Banks appealed. In April, the OCC issued a rule asserting that the NBA preempts state laws from applying to nationally chartered banks. Kendall then ruled against the Illinois law in June, citing the rule. The NCUA followed with a similar rule covering federal credit unions, and in September Kendall expanded her injunction. Illinois Attorney General Kwame Raoul said last month he would appeal both rulings.

Banking groups have argued the Illinois law would create an unworkable patchwork of state payment rules and that federal law protects nationally chartered institutions' card programs — positions the agencies' rules adopted.

What are retail leaders saying?

"After Illinois' Interchange Fee Prohibition Act was initially upheld by the courts, banks, credit card companies and processors attempted an end run around legislators and the courts in an attempt to protect their ability to unilaterally impose fees on consumers and businesses," said Illinois Retail Merchants Association President and CEO Rob Karr.

"Grocery shoppers are already watching every dollar at the checkout, and every added cost in the system matters," said Leslie G. Sarasin, president and CEO of FMI. "Grocers should not be charged swipe fees on sales tax and tips, money they collect and pass through in full to governments and employees and do not keep as revenue."

"Independent grocers operate on razor-thin margins, and every dollar lost to excessive credit card swipe fees is a dollar that could otherwise go toward keeping groceries affordable, investing in employees and serving local communities," said Greg Ferrara, president and CEO of NGA. "The OCC and NCUA sidestepped the law to protect bank and credit union profits."

"These lawsuits show that the OCC and NCUA ignored the law and didn't have the authority to do what they did," said Doug Kantor, general counsel of NACS. "The OCC and NCUA's rushed rewrites of federal regulations are not legitimate."

The plaintiff coalition also includes the National Retail Federation, the Retail Industry Leaders Association's Retail Litigation Center, the National Restaurant Association's Restaurant Law Center, the Illinois Fuel and Retail Association and the Illinois Restaurant Association.

The D.C. court's response to the Administrative Procedure Act claims will shape whether other states can replicate Illinois' approach — and whether the $500 million in projected annual savings for Illinois merchants and shoppers survives.