CEI leads coalition supporting OCC preemption of Illinois Interchange Fee Prohibition Act

CEI today sent a letter to Jonathan Gould, the Comptroller of the Currency, cosigned by 22 other free market groups, supporting his office’s efforts to preempt the Illinois Interchange Fee Prohibition Act. That law, scheduled to take effect on July 1, would prevent banks from charging interchange fees on any portion of a card payment at a merchant that represented a gratuity or a tax. While seemingly simple, this law would throw the national payments system into chaos.

As the letter says,

The Illinois Interchange Fee Prohibition Act (IFPA) represents an existential threat to the smooth operation of the national banking system. By requiring banks to separate out sales taxes and gratuities from each transaction for interchange fee calculations, the law imposes a substantial burden on day-to-day operations of smaller banks and credit unions. Credit unions in particular have indicated the cost burden may compel them to stop offering payment cards to their members in Illinois.

When Congress passed the National Bank Act, it was its clear intention to facilitate a national banking system. Courts and regulators have always recognized that this allows the Office of the Comptroller of the Currency (OCC) to authorize banks to create a payment system and to charge for that service.

The Illinois law interferes with that responsibility. So not only is it illegal under the National Bank Act, but also unconstitutional under the Supremacy Clause. Because it would substantially interfere with interstate commerce, it is also unconstitutional under the Commerce Clause.

Allowing the law to stand would not only impose massive additional costs on banks, which will almost certainly cause consumer costs to rise, it is likely to provoke other states to pass similar copycat laws that will compound the problem.

The OCC has proposed an interim final order to block the Illinois law, and an interim final rule to clarify the law regarding the right of banks to administer and charge for a payments system. The coalition supports these efforts as necessary and proper to uphold the rule of law.