MARLBOROUGH, Mass. — The Cooperative Credit Union Association (CCUA) is urging the National Credit Union Administration to expand a newly adopted federal preemption rule beyond federal credit unions to include federally insured, state-chartered credit unions, arguing the move is necessary to preserve competitive parity and protect the industry’s dual-chartering system.
In a comment letter to the NCUA on its interim final rule governing federal credit union non-interest charges and fees, the association said it strongly supports the agency’s decision to preempt state laws regulating interchange fees for federal credit unions. However, it said the same protections should be extended to state-chartered institutions.
The NCUA’s interim final rule consolidates existing federal preemption provisions into a new Section 701.5 of its regulations and clarifies that federal law preempts state laws regulating credit card and debit card interchange fees charged by federal credit unions.
Recommendation to Include FISCUs
The CCUA, which represents nearly 200 state- and federally chartered credit unions in Delaware, Massachusetts, New Hampshire and Rhode Island serving more than five million members, said the agency should use its authority under Section 206(b) of the Federal Credit Union Act to apply the interchange fee provisions to federally insured state-chartered credit unions as well.
According to the association, failing to do so would leave state-chartered credit unions subject to state laws such as the Illinois Interchange Fee Prohibition Act while exempting federal credit unions, creating an uneven competitive environment.
Key Arguments
Among the association’s key arguments:
- The Illinois law and similar state interchange fee statutes are “unworkable” and would impose significant compliance and operational costs on credit unions.
- Applying the rule only to federal credit unions creates an uneven playing field that could encourage charter conversions and undermine the dual-chartering system.
- The disparity could eventually pose risks to the National Credit Union Share Insurance Fund if state-chartered institutions are placed at a competitive disadvantage.
- If the NCUA does not directly extend the rule to state-chartered credit unions, it should work with the National Association of State Credit Union Supervisors and state regulators to achieve the same result through state “wildcard” or federal parity statutes.
The CCUA noted NCUA has previously used its authority under Section 206(b) to extend numerous safety-and-soundness regulations to federally insured state-chartered credit unions and argued interchange fee regulation presents similar concerns involving earnings, operations and supervision.
Continuation of ‘Longstanding Policy’
The association also said the interim final rule continues longstanding NCUA policy. It noted that since 1984, NCUA regulations have expressly preempted state laws governing federal credit union account fees, including nonsufficient funds fees.
The letter cited a 2025 decision by the United States Court of Appeals for the Ninth Circuit in King v. Navy Federal Credit Union, which upheld the agency’s preemption authority and described the regulatory language as explicit.
The CCUA further noted that the Office of the Comptroller of the Currency adopted a similar interim final rule earlier this year preempting state interchange fee laws for national banks. However, the association argued the NCUA possesses broader preemption authority than the OCC because amendments made by the Dodd-Frank Wall Street Reform and Consumer Protection Act placed additional limits on the OCC’s ability to preempt state laws.
Endorsement of Five-Factor Framework
In addition to supporting the rule’s preemption provisions, the CCUA endorsed the NCUA’s broad definition of “charge” and the agency’s five-factor framework for evaluating the reasonableness of non-interest fees. Those factors include:
- Costs incurred by the credit union in providing the service.
- Deterring misuse of financial services.
- Enhancing the credit union’s competitive position.
- Use of third-party service providers.
- Maintaining the institution’s safety and soundness.
The association said the NCUA should evaluate fee reasonableness consistently with standards used by the OCC while recognizing that not-for-profit credit unions generally charge lower fees than for-profit banks.
