BOSTON — A representative of the Defense Credit Union Council warned Massachusetts lawmakers that state efforts to regulate credit card interchange fees could have unintended consequences for credit unions, military families and the broader payments system.
Testifying before a Massachusetts legislative commission examining interchange policy, Jason Stverak, chief advocacy officer for DCUC, said proposals aimed at limiting interchange fees go far beyond pricing issues and could create operational challenges for financial institutions and merchants.
Stverak said interchange revenue helps credit unions fund fraud prevention, cybersecurity programs, rewards, digital banking services, financial counseling and low- or no-fee products. For defense credit unions, he said, those revenues also support services tailored to military members, veterans and their families.
‘Not Excess Profit’
“Interchange revenue is not excess profit,” Stverak told the commission, according to his prepared remarks. “It helps fund fraud prevention, cybersecurity, rewards, secure digital banking, financial counseling, low- or no-fee products, deployment relief, and, in many cases, on-base or military-community access points.”
Stverak pointed to an Illinois law as an example of the complexity that can accompany interchange restrictions. According to his testimony, the law requires tax and gratuity data to be included during authorization or settlement of transactions, establishes documentation and refund procedures, prohibits certain workarounds, imposes civil penalties of up to $1,000 per transaction and limits how transaction data may be used.
He said similar proposals have emerged in several states, including Pennsylvania, New York, New Jersey, Colorado and Massachusetts.
“That is not a narrow pricing issue,” Stverak said in his statement. “It is a state-specific rewrite of payment operations.”
Problematic Patchwork
Stverak argued that a patchwork of state interchange laws would be particularly problematic for defense credit unions because military families frequently relocate across state lines and depend on payment systems that function consistently nationwide.
He said varying state requirements could create uncertainty for merchants, payment processors, card issuers and consumers while adding administrative burdens related to documentation, reconciliation and refunds.
Stverak also cited a recent action by the National Credit Union Administration. According to his testimony, the NCUA on June 8 adopted an interim final rule clarifying that federal credit unions may charge non-interest fees, including interchange fees, even when those fees are established by or in consultation with third parties, and that conflicting state limits are preempted for federally chartered credit unions.
Greater Burden on State Charters
As a result, Stverak said, state-chartered credit unions could face greater regulatory burdens than federal credit unions if states enact interchange restrictions.
He warned that such disparities could encourage some state-chartered institutions to consider converting to federal charters to maintain competitive parity in card operations, vendor relationships and member services.
“The credit union movement is stronger because it has a dual-charter system, with both state and federal options,” Stverak said in his testimony. However, he cautioned that significantly different regulatory treatment could undermine that balance over time.
Stverak urged lawmakers to consider the potential effects on military families, payment-system reliability and charter parity as they evaluate interchange legislation.
