The Durbin Amendment Enters the Battle Over the Illinois Interchange Law

Illinois Senator Dick Durbin is refuting claims by plaintiffs in the Illinois interchange lawsuit that federal banking laws, such as the Durbin Amendment, supersede state laws. The latest back-and-forth is part of an unfolding lawsuit challenging the Illinois Interchange Fee Prohibition Act.

In an amicus brief filed late Friday, Durbin argues that, while plaintiffs in the lawsuit contend the Illinois Interchange Fee Prohibition Act (IIFPA) “conflicts with, and is preempted by, the uniform federal standard for the permissible amount of interchange fees in the Durbin Amendment,” the amendment “creates no such federal standard that supersedes state laws which may further regulate interchange on debit card transactions.”

Plaintiffs have referenced the Durbin Amendment in their motions filed with the court as the amendment to the Dodd Frank Act that regulates debit card pricing, says the Illinois Bankers Association, which is a plaintiff in the suit.

In his brief, Durbin writes: “The Durbin Amendment and Regulation II do not create any such uniform federal standard. Rather, the Durbin Amendment and Regulation II create a ceiling for network-fixed debit interchange rates and permit variation in the rate level and structure so long as the fees remain below that maximum. The [IIFP] respects and does not contravene the ceiling that the Durbin Amendment and Regulation II established.”

Durbin submitted the brief along with briefs from several other organizations representing merchants at the national and state levels in support of the IIFPA. The motions were filed in advance of an expected Oct. 30 hearing on a request for an injunction to delay implementation of the law, which is scheduled to take effect July 1, 2025.

Durbin stated he was submitting his brief to ensure “proper understanding and application of the law [I] authored” and to “advise the court regarding the plaintiffs’ claim that the Durbin Amendment and its implementing regulation, (“Regulation II”), pre-empt the Illinois Interchange Fee Prohibition Act and that the plaintiffs’ “pre-emption claim lacks merit.”

Doug Kantor, general counsel for the National Association of Convenience Stores, which joined a group of organizations filing amicus briefs Friday on behalf of the IIFPA, says Durbin’s brief is defendable.

“There is nothing in the Durbin Amendment that pre-empts state law, or prevents states from going further,” when it comes to interchange pricing, Kantor says.

In his brief, Durbin argues the IIFPA reflects the “reasoned judgment that card issuers’ use of centrally fixed rates to charge an interchange fee on sales taxes and tips is regressive economic policy.”

The IIFPA 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.

“Sales taxes and tips are not monies that are retained or controlled by merchants,” Durbin says in the brief. “When interchange is charged on taxes and tips, however, merchants are forced to raise retail prices to cover the larger fee amount that is deducted from the debit transaction as it is processed.”

Durbin goes on to argue that consumers ultimately end up paying for the “burden” of interchange fees on taxes and tips in the form of higher prices.

“The [IIFPA] addresses this inequity by protecting merchants and consumers from bearing the burden of interchange fees that are inflated by having the sales tax and tip amounts incorporated into the debit-rate calculation,” Durbin says in the brief. “The [IIFPA] was wise to address this regressive policy and to do so in a way that does not contravene federal law.”.

Durbin also argues that “both the Durbin Amendment and the IIFPA take important steps “to rein in debit interchange fee collusion that card networks like Visa and Mastercard facilitate on behalf of their card-issuing financial institutions.”

Durbin adds that the “two laws do so in ways that are consistent with, and complementary of, one another.”

Richard Hunt, executive chairman of the Electronic Payments Coalition, dismisses Durbin’s arguments, saying by email they are part of a “fanatical crusade to help the largest corporate mega-stores—who also happen to be among their largest campaign donors. They have weaponized the federal government against American companies, and now Senator Durbin is turning to the courts.”