Bank and Credit Union Groups File Reply in Lawsuit Challenging Illinois Interchange Fee Prohibition Act

INTRODUCTION

This Court has already recognized that the Interchange Fee Prohibition Act (“IFPA”) is preempted with respect to national banks and Federal savings associations. The Attorney General resists this conclusion by again asserting that when the Supreme Court has repeatedly said the standard for National Bank Act (“NBA”) preemption is “significant interference,” what it really meant was “extreme interference.” But this Court has already rejected that distortion of controllingprecedent, and rightly so. This Court has further correctly recognized that federal law entitles outof-state-chartered banks to parity of treatment with national banks. The Attorney General fights that conclusion with a dizzying argument about “branches” that is unsupported by any on-point precedent. Those arguments fall short as well.

That means that, at a minimum, national banks, out-of-state state-chartered banks, and Federal savings associations are protected from the Interchange Fee Prohibition and the Data Usage Limitation. But as Plaintiffs demonstrated in their Memorandum, ECF 125 (“Pl. Br.”), federal-law protections for their members do not stop there. Federal law also shields federal credit unions (under preemption principles) and all out-of-state institutions (under the dormant Commerce Clause) from Illinois’ overreach. Id. at 23-32. In addition, to give practical effect to the guarantees of federal law, this Court must issue an injunction that allows card networks, processors, and any other non-exempt entities to carry out functions that facilitate the charging or receipt of interchange by protected institutions. Id. at 32-38.

The Attorney General dismisses the idea of extending relief beyond national banks, Federal savings associations, and out-of-state banks as resting on “a hodgepodge of secondary arguments.” ECF 138 (“AG Br.”) at 2. But the principles on which Plaintiffs rely flow directly from the NBA and the Supremacy Clause and are vital to the dual banking system on which the state and national economy rest.

That system depends on the existence of parallel state and federal regulatory regimes, on the one hand, and competitive equality, on the other. For parallel regulatory regimes to exist, the federal government must retain its primacy as the regulator of federally chartered institutions; preemption precludes states from usurping that role. Federal credit unions are just as entitled to this protection as national banks and Federal savings associations—all are federal instrumentalities.

At the same time, competitive equality between different types of financial institutions is essential to the dual banking system because, otherwise, legislatures and regulators could use their authority to favor their preferred institutions and undermine others. Eventually, some types of institutions would be squeezed out, and the overall system would suffer as competition diminished. So, over the years, lawmakers—including Congress and the Illinois legislature—have adopted various measures to ensure equal treatment of different types of financial institutions. And the dormant Commerce Clause provides a constitutional backstop, guaranteeing that out-of-stateinstitutions will not suffer discrimination when they are not on their home turf. As this Court has already correctly recognized, the cost of compliance with the IFPA would be “onerous”—indeed, for many financial institutions, it would be “crippling.” ECF 104 at 33, 35. It is not “audacious (AG Br. 2) to ask this Court to interpret and give effect to the interlocking provisions that, together, are designed to preclude Illinois from selectively imposing these regulatory burdens on some financial institutions while sparing others.

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