OCC Preemption Brief Regarding the Illinois Interchange Statute

Earlier this year Illinois passed a law that provides that “

an issuer, a payment card network, an acquirer bank, or a processor may not receive or charge a merchant any interchange fee on the tax amount or gratuity of an electronic payment transaction if the merchant 

informs the acquirer bank or its designee of the tax or gratuity amount as part of the authorization or settlement process for the electronic payment transaction.

” The statute defines interchange fees as "a fee established, charged, or received by a payment card network for the purpose of compensating the issuer for its involvement in an electronic payment transaction." In other words, no interchange fees may be levied on taxes or tips.

 

Compliance with the statute would be an administrative and technological hot mess for card networks. Not surprisingly, the banking industry has challenged the law, and the OCC has weighed in with an amicus brief.  I’m not going to address the policy merits of the Illinois statute here. Instead, my interest is the National Bank Act preemption analysis in the OCC’s brief. Although I think the OCC gets the preemption analysis correct in the end, it makes a concerning claim on the way. 

 

The OCC claims that its “judgment as to whether a state restriction interferes with the exercise of national bank powers is entitled to “weight” by a reviewing court. See Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944); 12 U.S.C. § 25b(b)(5) (codifying the Skidmore standard).”  That’s simply wrong. Under current administratively law, there’s no weight given to any OCC decision, much less to a mere OCC amicus brief.  

 

Let’s assume for starters that Skidmore survived Loper Bright Enterprises v. Raimondo (I think it did). What does that mean? Skidmore is not actually deference. It just means that a court will go with an agency’s interpretation if the interpretation is persuasive. In other words, what matters are the merits of the interpretation, not who is making the interpretation. There is no "wise man" bonus added to the scale:  Skidmore plus $2.50 will get you from Cicero to O’Hare on the Blue Line.  Indeed, that’s exactly what section 25b(b)(5) says. Notably, section 25b(b)(5) doesn’t say anything about deference to the OCC’s determinations or that they shall be given “weight,” only that the court shall “assess the validity of such determinations.”  

 

But not only is there no “weight” accorded under section 25b(b)(5), but section 25b(b)(5) isn’t even applicable. Section 25b(b)(5) is about OCC “determinations.” In the context of section 25, it’s pretty clear that “determinations" refers to case-by-case preemption determinations, which would be rulemakings, not merely positions taken in amicus briefs, and under section 25b, those rulemakings would have to go through a process of consultation with the CFPB that did not occur with the OCC’s amicus brief. Simply put, the only relevant part of section 25b for the Illinois litigation is section 25b(b)(1)(B), which provides that the relevant preemption standard is whether the state law “prevents or significantly interferes with the exercise by the national bank of its powers.” 

 

Let me emphasize that I’m not disputing the OCC’s ultimate section 25b analysis here. I think the OCC has it right. Whatever one thinks about interchange fees, it's hard to see how the Illinois statute will survive a preemption challenge. But the fact that the OCC says so should not hold any greater weight than anyone else saying so. Indeed, it’s worth remembering that the OCC has a history of being very aggressive in pushing preemption of state laws, often with disastrous policy effects, such that the OCC's policy judgments should be taken with some skepticism. Even if the OCC is right here on the merits, it’s not because it’s the OCC. It’s because the Illinois statute is a pretty clear cut interference with national bank powers.