Illinois bank fee ban triggers federal showdown over state powers
A new Illinois law aimed at banning certain bank fees has sparked a legal clash with federal regulators. The state’s Interchange Fee Prohibition Act, due to take effect on 1 July, would stop banks from charging fees on card payments covering gratuities or taxes. But the Office of the Comptroller of the Currency (OCC) has moved to block it, arguing the law violates federal banking rules and the US Constitution. The dispute centres on the National Bank Act, passed by Congress to create a unified banking system. Under this law, the OCC oversees banks’ ability to run payment networks and set fees. The Illinois measure directly conflicts with these federal powers, according to the regulator.
The OCC has proposed two key actions: an interim final order to halt the Illinois law and a rule to reaffirm banks’ rights to manage and charge for payment systems. Without intervention, the agency warns, the law could push up costs for consumers and prompt other states to follow suit. Free market groups, including the Competitive Enterprise Institute (CEI) and 22 others, have backed the OCC’s stance. In a letter to Comptroller Jonathan Gould, they argued the Illinois law undermines the rule of law by clashing with the National Bank Act and breaching the Supremacy Clause and Commerce Clause of the Constitution. Critics also highlight the law’s potential impact on smaller financial institutions. Credit unions may drop payment card services for Illinois members if the law stands, citing unsustainable costs. The OCC has stressed that such disruption would threaten the stability of the national payments network.
The OCC’s proposed measures aim to prevent the Illinois law from taking effect next month. If successful, banks would retain their current fee structures, avoiding higher consumer costs and operational strain on smaller lenders. The outcome will determine whether states can impose similar restrictions on financial services in the future.
