Illinois Interchange Law Effective Date Extended to July 1, 2027
The Illinois Interchange Fee Prohibition Act (IFPA) was slated to take effect July 1, 2026. Early Monday morning, June 1, the Illinois General Assembly voted to delay the effective date to July 1, 2027. This gives credit unions an extra year to comply if the law withstands legal and regulatory challenges, which remain ongoing.
Here is what you need to know to protect your credit union from potential penalties for noncompliance.
Credit union, bank, and payment associations have been working together to share concerns with members of the Illinois legislature and will continue to work for a legislative repeal of the IFPA. For now, we have successfully won one battle, which extended the compliance date by one year to July 1, 2027.
On May 29, Cornerstone submitted a comment letter to the Office of the Comptroller of the Currency (OCC) supporting its interim final rule clarifying the longstanding powers under federal law for national banks to charge certain fees, regardless of whether those fees are set by the bank or a third party, and confirming federal preemption.
The NCUA has submitted a similar rulemaking to the Office of Information and Regulatory Affairs to confirm that federal law preempts the IFPA as it relates to credit unions. The rule is expected to be published in the Federal Register soon. Cornerstone plans to comment and will activate a comment call to assist member credit unions in commenting as well.
Although we have not yet seen the proposed NCUA rulemaking, it is our understanding that the NCUA plans to clarify federal preemption solely for federally chartered credit unions (FCUs), exempting FCUs from compliance. It is expected that Illinois state-chartered CUs will claim an exemption under their state credit union act parity provision. Therefore, if the law takes effect, state-chartered credit unions chartered in any state other than Illinois would need to comply, while FCUs would be exempt.
The easiest solution (but not necessarily the best) would be to prevent cards from being used in transactions tied to the state of Illinois. Although this approach keeps compliance simple, it will negatively impact your members, which needs to be carefully considered.
If you choose not to shut off card usage, then you will need to be prepared to comply. The IFPA law creates two avenues for excluding interchange fees on taxes and gratuities. First, merchants can detail the tax and gratuity as part of the authorization or settlement process to avoid being charged interchange fees on the tax and/or gratuity. The payment rails are not set up to do this right now, so merchants will likely have to go with the second option until the payment rails are adjusted.
The second option is for merchants to submit tax documentation for the electronic payment transaction to the acquirer bank within 180 days. The card issuer then has 30 days to credit the merchant with the appropriate reimbursement. If the credit union meets that deadline, it will avoid the hefty penalty fees of $1,000 per transaction.
Realistically, we suspect only large merchants, such as Walmart and Target, will be able to process the reimbursement requests. Practically speaking, smaller merchants likely will not have the time or resources to process most reimbursement requests.
Contact Suzanne Yashewski at syashewski@cornerstoneleague.coop.
