Since the time of President Lincoln, American consumers have benefited from a dual banking system, made up of both state-chartered institutions and federally chartered national banks. 

This system — which can trace its roots back to the U.S. Constitution — allows consumers to have more choices. It offers them a robust marketplace of banks of different sizes and business models to meet their needs. And it enables the nation’s more than 750 national banks to operate safely, soundly and efficiently across multiple jurisdictions under the supervision of the OCC, while at the same time allowing state banks to serve their communities with local supervision.

But this system, which has served our country well for more than 150 years, is now coming under threat, as lawmakers in both red states and blue states have begun to pass laws that will interfere with national bank operations, violate federal preemption and tread squarely on the OCC’s turf. 

Just look at the situation currently unfolding in Illinois, with the Interchange Fee Prohibition Act that was signed into law this summer as part of the state’s budget legislation. This misguided law bans banks, credit unions, payments networks and other entities from charging or receiving interchange fees in Illinois on taxes and tips charged as part of a credit or debit card transaction.

This law — which will create unprecedented chaos and confusion for consumers and businesses if allowed to take effect — violates multiple federal statutes, including the National Bank Act and the Federal Credit Union Act, and cannot be enforced against national banks, federal savings institutions or state-chartered banks, as well as federally and state-chartered credit unions. It also runs afoul of the Electronic Fund Transfer Act, which directly addresses the permissible amount of interchange fees for debit card transactions and does not carve out taxes and gratuities. 

This law, a gift to corporate mega‑retailers as part of a last‑minute budget deal, is the first of its kind to pass in the nation. We can’t let it stand and run the risk of other states following, which is why ABA is fighting back. 

Together, with the Illinois Bankers Association, America’s Credit Unions and the Illinois Credit Union League, we filed a lawsuit challenging the law, and we are seeking a preliminary injunction pausing implementation until the court can rule on the merits of our case. With top outside lawyers assisting us, we have confidence we will prevail in this case, sending a strong message to other states looking to follow Illinois’ lead.

We’ve seen a different kind of challenge to the dual banking system in other states. Florida and Tennessee have put in place their own safety and soundness tests, encroaching on the OCC’s federal oversight of national banks. 

Like ABA, the OCC has taken notice. 

We’ve been encouraged by comments from Acting Comptroller Michael Hsu, noting that his agency will continue to defend the dual banking system. The acting comptroller pointed out in recent remarks that “increasingly, banks are being asked by states to pick a side in service of performative politics rather than deliberative policy.” This simply shouldn’t be the case, and we will continue to urge the OCC to exercise its authority when states cross the line. 

Our dual banking system has served Americans well for decades. ABA will continue to push back against efforts to undermine that system, and we’ll keep pressure on regulators to do the same. 

Email Rob at nichols@aba.com.