Waiting on the World to (Inter)Change: Federal Court Upholds Illinois Interchange Ban in Split Decision
Although federal regulation typically takes center stage in our updates, this one switches up the venue and begins at the state level – where a first-of-its-kind statute has stepped into the ring with potentially broader implications worthy of attention.
A federal district court in Illinois has issued a closely watched, split decision on the Illinois Interchange Fee Prohibition Act (IFPA), largely upholding the first-in-the-nation law while striking down its data-sharing restriction. The IFPA prohibits banks, payment networks, and other entities from charging or receiving interchange fees on the portion of a debit or credit card transaction attributable to taxes or gratuities. Financial industry groups challenged the law in the U.S. District Court for the Northern District of Illinois, arguing that it was preempted by federal law and would create operational complexity and disruption within established payment systems.
Judge Virginia Kendall described the matter as “a close case,” noting the absence of similar laws in other states. Ultimately, the court upheld the interchange restriction, rejecting arguments that the National Bank Act preempted the statute. In doing so, the court reasoned in part that interchange fees are set by payment networks – not banks directly – making the preemption argument less contextually persuasive. As the court explained, “[W]hile that argument definitively protects national banks from intrusion into the fees they charge on their ATMs and savings account services, it is hard to square with a state law that impacts a fee that those same banks do not set and that are not keyed to their particular services.”
The court added: “The Payment Card Networks built this ecosystem, and the Payment Card Networks set these fees. To claim that the IFPA Interchange Fee Provision impermissibly interferes with the powers set out in 12 C.F.R. § 7.4002 – which ‘should be arrived at by each bank on a competitive basis and not on the basis of any agreement’ – does not add up in the face of that reality.”
However, the court struck down IFPA’s data-sharing restriction, which prohibited parties other than retailers from sharing transaction data beyond what was necessary to complete the transaction or required by law. The court concluded that this provision was preempted, recognizing that federal law grants financial institutions broad authority to engage in data processing activities.
Though we’ve discussed them before (like in our Durbin Amendment discussion), substantively, interchange fees (which typically average around 2% of a transaction) are paid by a retailer’s bank to the consumer’s bank whenever a card is used, with those costs often passed on to consumers. Under IFPA, retailers would no longer pay interchange on the tax and tip portion of transactions, which would protect customers from paying them as well. (It may be worth pausing here to point out that when comparing to the Durbin Amendment, while there are definitely similarities worth keeping in mind, at the risk of overly simplifying things: Durbin effectively aims to regulate how much can be charged, whereas the IFPA aims to regulate what portion of a transaction can be charged.)
Supporters hailed the decision as a meaningful win for businesses and consumers and expressed hope that other states may follow Illinois’ lead, and that the elimination of “onerous swipe fees” will ultimately save businesses and consumers millions of dollars each year.
Opponents warned that separating out tax and gratuity amounts for fee calculation would require system changes, increased costs (along with “administrative headaches and longer checkout times” for small businesses), and potentially introduce fraud and operational risks. And while there may certainly be merit to their claims as to some of the expected difficulties in adopting to such a consumer-driven change – notably, amongst their arguments against the law was the idea that for “tipped and gig workers,” a shift back to cash payments would lead to fewer tips and a reduction in wages because digital tipping would become “more complicated” – but this speculation seems to be a stretch (at best). Modern customers overwhelmingly prefer digital payments, but merchants depend (more and more) on card-based systems for speed, streamlined accounting, fraud protection, and meeting customer expectations; the opponents seemingly don’t fully acknowledge the fact that the law wouldn’t prohibit or restrict digital payments – it would instead change how interchange is calculated on certain portions of the transaction.
Judge Kendall acknowledged that “there is no doubt that the IFPA presents complicated compliance challenges,” but ultimately concluded, somewhat poignantly, that “these compliance costs, among others, are undeniable. But State (and federal) laws will always require some kind of compliance cost, no matter who bears it.”
This one, as you might expect, is far from over. Industry groups, including the Electronic Payments Coalition, have announced plans to appeal and renewed calls for legislative repeal, sticking firmly to the argument that the law remains fully preempted and reiterating the warning of broader disruption to the payment system. Unless stayed, the law is set to take effect July 1, 2026 (implementation was previously delayed to allow the legal dispute to proceed). Other state legislatures are likely watching closely as the appeal process unfolds (and so, presumably, are your community banks in their respective states) because this is unlikely to be the last round in the “interchange fight,” and the eventual winner may carry that “title belt” well beyond Illinois.
The United States District Court for The Northern District of Illinois (Eastern Division) Opinion & Order can be found here: [Illinois Bankers Association et al v. Raoul, No. 1:2024cv07307 – Document 179 (N.D. Ill. 2026)]
The “current” Illinois Interchange Fee Prohibition Act can be found here: [815 ILCS 151/Art. 5]
Written by:
Brett Goodnack, JD, CAMS
Compliance Advisor
Grand Opening, Grand Closing: FinCEN Cracks the Can Open Again on the 2016 CDD Rule
What was once a cornerstone of FinCEN’s 2016 CDD framework is now being positioned by that same agency as an “unnecessary burden.” On February 13, 2026, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued Order FIN-2026-R001, granting exceptive relief from certain provisions of the 2016 Customer Due Diligence (CDD) Rule. In its release titled “Relief Reduces Burdensome and Duplicative Regulatory Requirement,” FinCEN described the action as eliminating what it characterized as a “duplicative obligation” that required covered financial institutions to identify and verify the beneficial owners of a legal entity customer each time that customer opened a new account.
Under the order, covered financial institutions are no longer required to collect and verify beneficial ownership information at each subsequent account opening for an existing legal entity customer. Instead, institutions must identify and verify beneficial owners only when: (1) a legal entity customer first opens an account; (2) the institution becomes aware of facts that “reasonably call into question the reliability of previously obtained beneficial ownership information;” or (3) such collection is warranted under the institution’s risk-based ongoing customer due diligence procedures. Where reliance is placed on previously obtained information, the institution may rely on that information if the customer certifies or confirms, verbally or in writing, that it remains accurate and up-to-date, and the institution maintains a record of that certification.
Singing a tune it croons often, FinCEN emphasized that the relief does not alter broader BSA / AML obligations; that is, covered financial institutions must still establish and maintain written procedures reasonably designed to identify and verify beneficial owners of legal entity customers; conduct ongoing monitoring to identify and report suspicious activity; and, on a risk basis, maintain and update customer information. The relief is discretionary – meaning that banks / institutions may choose to continue collecting beneficial ownership information at each new account opening and FinCEN retains authority to revoke the exception. The agency framed the action as part of its broader effort to modernize the Bank Secrecy Act framework, align with deregulatory “initiatives,” and inform anticipated revisions to the 2016 CDD Rule under the Corporate Transparency Act (see more on this later, below).
While framed repeatedly as modernization and burden reduction, this shift marks a notable departure from FinCEN’s longstanding interpretation of the 2016 rule. To wit, in its 2018 CDD FAQs (arguably the clearest articulation of its interpretive position on the 2016 CDD Rule), FinCEN repeatedly emphasized that the beneficial ownership requirement was intentionally tied to the account-opening event. FinCEN stated plainly:
“In general, covered financial institutions must identify and verify the identity of the beneficial owner(s) of legal entity customers at the time each new account is opened.”
As you might expect, that tracked to the rule itself. In the 2016 rule’s preamble, FinCEN explained – in one of its more fundamental arguments – that the opening of a new account presents “a relatively convenient and otherwise appropriate occasion to obtain current information regarding a customer’s beneficial owners.”
The FAQ then reinforced that this obligation applied regardless of frequency or timing:
“Generally, covered financial institutions must identify and verify the legal entity customer’s beneficial ownership information for each new account opening, regardless of the number of accounts opened or over a specific period of time.”
Again, that language reflected deliberate policy reasoning. At that time, FinCEN rejected arguments that repeated certifications were unnecessary, noting the (rather obvious) fact that beneficial ownership can change over time and that formation-stage transparency would not eliminate the need to collect information at account opening because the time of account opening may differ from the time of company formation – and ownership may have changed in the interim.
Even where FinCEN allowed reliance on previously collected information, it made a specific point of preserving the account-opening trigger:
“…provided the customer certifies or confirms (verbally or in writing) that such information is up-to-date and accurate at the time each subsequent account is opened…”
That structure mirrored the final rule’s balancing approach – not retroactive collection, not periodic blanket updates – but a defined control point at each new account. FinCEN explicitly declined to require periodic updating at fixed intervals, explaining instead that (in addition to other “event-driven” or “risk-related” triggers) the account-opening event was an appropriate recurring moment for collection.
FinCEN also made clear that the “new account” concept was not incidental, but structural:
“…The beneficial ownership requirement applies to a ‘new account,’ which is defined to mean ‘each account opened … by a legal entity customer’…”
Once again, the 2016 CDD rule’s logic justified that design as part of closing a transparency gap that previously “enable[d] criminals, kleptocrats, and others looking to hide ill-gotten proceeds to access the [U.S.] financial system anonymously.” The repeated account-opening trigger functioned as a foundational guardrail against that risk.
Indeed, the FAQ made that purpose explicit:
“The distinction between such accounts opened by customers and those opened solely by the financial institution is consistent with the Rule’s purpose to mitigate the risks related to the obfuscation of beneficial ownership when a legal entity tries to access the financial system through the opening of a new account.”
Even renewals and rollovers were treated as new formal relationships:
“…each time a loan is renewed or a certificate of deposit is rolled over, the bank establishes another formal banking relationship and a new account is established.”
If you’re beginning to sense a pattern, that interpretation flowed directly from the rule’s incorporation of the CIP framework and the longstanding principle that a renewal establishes a new formal banking relationship (see, also, FinCEN’s 2005 Interpretative Guidance).
Against that luscious backdrop, the 2026 exceptive relief seemingly does a whole lot more than streamline paperwork – in effect, it removes the very recurring control point that the 2016 rule described as “appropriate,” “convenient,” and practically necessary to prevent ownership obfuscation.
It should be reiterated once again that FinCEN states that it “anticipates pursuing further changes to the 2016 CDD Rule through the rulemaking process, and this exceptive relief notice will help inform those efforts.” So, where we go from here is anyone’s guess, but if a control once justified as a deliberate guardrail against ownership opacity can now be labeled “burdensome and duplicative,” it isn’t necessarily unreasonable to wonder whether other AML and fraud safeguards may soon be reexamined through the same lens of “convenience.”
The Exceptive Relief Order can be found here: [FIN-2026-R001] and its accompanying Press Release is here: [FinCEN Issues Exceptive Relief to Streamline Customer Due Diligence Requirements]
The 2016 CDD Rule can be found here: [81 FR 29398] and the 2018 FAQ is here: [FIN-2018-G001]
Written by:
Brett Goodnack, JD, CAMS
Compliance Advisor
A Modest Proposal – Don’t Host Scams: Bipartisan Bill Targets Scam Ads Online
When you see bipartisan support behind blooming legislation, there’s a strong sign that it’s something good. A (bipartisan!) pair of senators has introduced a new bill aimed squarely at the front end of the fraud pipeline, the online platforms where scam ads often originate. The Safeguarding Consumers from Advertising Misconduct (SCAM) Act, introduced by Sens. Bernie Moreno (R-Ohio) and Ruben Gallego (D-Ariz.), would require social media companies and other online platforms to take affirmative steps to prevent fraudulent and deceptive advertisements from appearing on their sites.
Under the proposal, online platforms would be prohibited from hosting scam ads and would be expected to implement stronger safeguards – such as clearer reporting tools and more proactive monitoring – to identify and remove fraudulent content before it reaches consumers. The bill would also bolster enforcement authority for the Federal Trade Commission and state regulators, strengthening their ability to pursue violations of existing consumer protection laws.
Trade associations have voiced support for the legislation, framing it as a necessary complement to banks’ own fraud-prevention efforts and emphasizing that while banks invest heavily in detecting and stopping fraud once it enters the financial system, too many scams begin long before a transaction ever touches a bank.
It can’t be understated that millions of Americans lose billions of dollars each year to scams that originate on social media platforms and this fact alone underscores why prevention at the source matters. From this perspective, the SCAM Act is positioned as a relatively modest expectation – that online platforms take greater responsibility for identifying and removing scammers from their ecosystems, rather than leaving banks and consumers to absorb the consequences after the fact. In that sense, fraud prevention never was (and never will be) a partisan issue, but rather a shared responsibility that should begin upstream; because, if treated as a downstream cleanup exercise – or as only “one party’s problem” – then the damage will have already been done.
The full text of the bill can be found here: [Safeguarding Consumers from Advertising Misconduct Act]
Written by:
Brett Goodnack, JD, CAMS
Compliance Advisor
Are You Ready for Some Crypto? Senate Kicks Off Market Structure Reform
Ahead of the Super Bowl, the Senate Agriculture Committee took its first “snap” on crypto market-structure legislation – advancing the bill even as critics argued the “play” should’ve been blown dead for a “false start.” In a narrowly divided, party-line vote, the Committee advanced the Digital Commodity Intermediaries Act (DCIA), a bill that would hand the Commodity Futures Trading Commission (CFTC) broad authority to regulate large segments of the digital asset market. While supporters frame the markup as a necessary first step toward long-awaited clarity, some of those more skeptical (or, to keep the admittedly thin analogy going, let’s call them rival fans) warned that the play was rushed, under-protected, and emblematic of deeper fault lines over how (and by whom) crypto should ultimately be regulated.
At a high level, the DCIA would fold digital-commodity spot markets into the Commodity Exchange Act by establishing a registration regime for digital-asset intermediaries, coupled with baseline customer-protection and risk-management standards. According to the committee’s section-by-section summary, the bill would require expedited provisional registration for covered intermediaries, mandate segregation of customer digital assets, impose compliance and governance obligations (including designated compliance officers), and direct the CFTC to complete full implementing regulations within 18 months. The framework also authorizes the agency to collect fees and hire staff to support its expanded role, while carving out exemptions for core blockchain development activity — all while preserving the CFTC’s anti-fraud and anti-manipulation authority.
As alluded to, Committee Democrats opposed the bill, with their primary “offense” being that the bill lacks sufficient safeguards, particularly around fraud prevention and restrictions on federal officials’ involvement with digital assets. Even with this in mind, members on both sides signaled interest in continued negotiations. The Agriculture Committee’s move also comes amid parallel (and currently stalled) efforts by the Senate Banking Committee to advance its own digital-asset market structure proposal – another endeavor that is reflective of high-level bipartisan support, but that has unresolved disputes over stablecoin interest payments and jurisdictional boundaries still very much in play.
Notably, the markup also featured a familiar – if ultimately “sidelined” (see what I did there) – subplot. In the days leading up to the vote, Senator Roger Marshall (R-Kan.) filed a reworked version of his recently discussed Credit Card Competition Act as a proposed amendment to the digital commodities bill, repackaging long-standing credit card routing mandates into a crypto market structure vehicle. Following swift and coordinated opposition from America’s Credit Unions and state leagues, and after significant engagement with committee members (let’s call these…coaches challenges?), Marshall ultimately agreed not to offer the amendment during the scheduled markup. Industry groups, advocates, and experts were quick to underscore that attaching the proposal to unrelated cryptocurrency legislation does little to improve its merits, warning that the policy would disrupt a secure and well-functioning payments system, increase fraud risk, weaken consumer protections, and restrict access to affordable credit – while primarily benefiting the nation’s largest retailers.
All told – the ball is moving – but whether this drive ends in a “touchdown” remains very much an open question. With that, the football puns mercifully end. You can find the Digital Commodity Intermediaries Act here: Digital Commodity Intermediaries Act, and the Committee’s section-by-section breakdown of the Digital Commodity Intermediaries Act here: Digital Commodity Intermediaries Act Section-by-Section.
Written by:
Brett Goodnack, JD, CAMS
Compliance Advisor