Illinois merchants scored a big victory late Tuesday in their battle for interchange relief as United States District Court Judge Virginia Kendall upheld the Illinois Interchange Fee Prohibition Act.

The decision, which comes after more than a year of legal wrangling, means the IFPA will go into effect July 1, a year later than originally intended. Since the measure’s passage in 2024, banking organizations have sought a permanent injunction against it. Prior to her final ruling, Kendall had issued a preliminary injunction against the IFPA in December 2024.

The law exempts Illinois merchants from paying interchange on sales tax and gratuities linked to credit and debit card transactions. In exchange, the state will cap what merchants earn for collecting sales tax at $1,000 per month.

Kendall’s ruling shot down plaintiffs’ arguments that federal banking laws, such as the National Banking Act, supersede state laws regarding banks’ ability to levy fees, such as card interchange. Kendall’s ruling stated that, while the IFPA is “novel” and “no other state has an equivalent to the IFPA,” all parties agree that issuers and acquirers do not set interchange, so the IFPA “does not directly regulate banks.” Kendall surmised that it is “the payment card networks, and not the banks, doing the actual work of [interchange] fee setting and charging” and that banks “only have a passive role in the rate-setting.”

As part of her preliminary injunction, Kendall ruled that, while financial institutions chartered outside Illinois that do business in the state do not have to comply with IFPA, Illinois-chartered financial institutions, credit unions, federally chartered credit unions, and the card networks must comply with the law.

“…this court found that the IFPA’s interchange fee provision was not preempted in large part because it was the payment card networks, and not the banks, doing the actual work of fee setting and charging,” Kendall wrote in her ruling.

Based on those findings, Kendall denied plaintiffs’ requests for a permanent injunction.

Proponents of the IFPA cheered Kendall’s ruling. The Illinois Retail Merchants Association, which backed the initial legislation, called the ruling “a historic win for Main Street over Wall Street” that “will save businesses and consumers millions of dollars a year.”

“As the first law in the nation to restrict onerous swipe fees, we hope this measure can serve as a model for other states to seek relief for businesses and working families struggling with higher costs,” Rob Karr, chief executive and president of the Illinois Retail Merchants Association, said in a statement.

Other merchant organizations echoed Karr’s sentiments. “This is a good and well-reasoned ruling that provides full vindication for what Illinois [legislators] did and what other states looking to regulate interchange may do,” whether it is passing a similar law or taking a different approach to interchange regulation, says Doug Kantor, an executive committee member at the Merchants Payment Coalition and general counsel for the National Association of Convenience Stores.

As of July 2025, bills to regulate interchange had been introduced or previewed before lawmakers in 22 states, according to the Electronic Transactions Association.

Plaintiffs in the case, which include the Illinois Bankers’ Association, the Illinois Credit Union League, and the American Bankers’ Association, expressed disappointment in Kendall’s ruling and vowed to appeal it.

“The decision not to protect the payment system from this misguided state law is a serious error that will unleash chaos and confusion on Illinois consumers and businesses,” co-plaintiffs said in a statement. “We cannot let that stand.”

Co-plaintiffs also renewed their call for state lawmakers to repeal the IFPA “before it can do any more harm to the Illinois economy. The fight over IFPA and any similar proposal will continue.”

The Electronic Payments Coalition, which has weighed in with an amicus brief, issued a statement saying the IFPA threatens to upend the card-based payments system and should be overturned.

“This reckless policy, which will make Illinois an outlier in the interconnected global payments system, must be fully and swiftly repealed by the Illinois General Assembly before it inflicts credit card chaos on small businesses and consumers across the state,” EPC executive chairman Richard Hunt said in a statement.