ALEXANDRIA, Va.–The National Credit Union Administration’s proposed rule reaffirming federal credit unions’ authority to collect interchange fees has drawn support from both the credit union and banking industries.
In a joint comment letter to the NCUA, America’s Credit Unions, the Illinois Credit Union League, the American Bankers Association and the Illinois Bankers Association said the interim final rule appropriately clarifies that federal law preempts state efforts to regulate interchange fees charged in connection with debit and credit card transactions.
The organizations said the rule is needed following recent litigation over Illinois’ Interchange Fee Prohibition Act (IFPA), which they argued created uncertainty over whether states can restrict interchange fees collected by federally chartered credit unions.
According to the associations, the Federal Credit Union Act already grants federal credit unions broad authority to charge and receive non-interest fees, including interchange fees, as part of providing payment card services. The NCUA’s rule, they said, confirms that authority while making clear that state laws cannot interfere with federally authorized powers.
“The Associations strongly support this rulemaking,” the letter states. “The rule confirms that the Federal Credit Union Act preempts state laws that interfere with federal credit unions’ decisions regarding the charging of fees.”
Focus on Illinois Law
Much of the comment letter centers on the Illinois Interchange Fee Prohibition Act, which bars the collection of interchange fees on the tax and gratuity portions of debit and credit card transactions.
The trade groups said a federal district court decision involving the Illinois law created confusion by concluding that existing NCUA regulations did not clearly preempt such state restrictions. Although that decision has since been vacated on appeal, the associations said the NCUA’s interim final rule provides needed regulatory clarity.
The organizations argued the agency’s revisions make clear that:
- Federal preemption extends beyond fees charged directly to members.
- Federal credit unions have explicit authority to collect interchange fees through payment networks and other third parties.
- State laws that attempt to regulate those fees conflict with federal authority and should be preempted.
Additional Recommendations
While endorsing the rule, the associations recommended the NCUA make minor revisions to eliminate what they described as potential legal ambiguity.
Specifically, they suggested the agency explicitly reference interchange fees within its preemption regulation or otherwise clarify that the listed examples of preempted state laws are illustrative rather than exhaustive. According to the groups, such changes would prevent future arguments that interchange fees fall outside the regulation’s scope.
Warning of Broader Economic Impact
The organizations also argued that allowing state laws such as Illinois’ to stand would have consequences extending well beyond federal credit unions.
According to the letter, complying with the Illinois law would require significant changes to payment processing systems because current card payment infrastructure is not designed to automatically exclude taxes and gratuities when calculating interchange fees. The groups said creating new systems and reimbursement processes would impose what courts and the NCUA have described as potentially “staggering” compliance costs.
The associations further warned that compliance challenges could expose federal credit unions to substantial financial penalties, increase costs for consumers through higher fees or reduced services, and potentially force smaller institutions to reconsider offering debit and credit card programs.
The letter also cautioned that if Illinois’ approach were allowed to spread, other states could adopt differing interchange regulations, resulting in a fragmented national payments system that would be more costly, less efficient and potentially more vulnerable to fraud.
In closing, the four organizations praised the NCUA for acting quickly to address the issue, saying the interim final rule will help protect federal credit unions, their members and the broader U.S. payments system from what they characterized as intrusive state regulation.
