WASHINGTON—Following a ruling by the OCC, credit unions and their co-plaintiffs in a lawsuit against a new Illinois law related to interchange are looking toward a hearing set for May 13 in the Seventh Circuit Court, hoping the OCC decision will carry some weight.
As the CU Daily reported here, in a move welcomed by credit unions, the Office of the Comptroller of the Currency said it has issued an interim final rule and interim final order affirming that federal law allows national banks to charge certain fees regardless of whether they are set by the bank or a third party, while also preempting a new Illinois law regulating interchange fees.
The OCC said the actions address questions raised by the Illinois Interchange Fee Prohibition Act, which is scheduled to take effect July 1, 2026. The IFPA prohibits financial institutions and card networks from charging “swipe” fees (interchange fees) on the sales tax and tip portions of credit/debit card transactions.
‘Complex & Unworkable’
The agency said the law would create a “complex, potentially unworkable, and destabilizing” framework for national banks, federal savings associations and payment card systems, particularly if other states adopt similar measures.
America’s Credit Unions, the Illinois Credit Union League and others filed suit almost as soon as the law was passed. But the courts have generally ruled in favor of the law—which is supported by retailers—that credit unions and other FIs say will create havoc in the state when it comes to using credit cards.
In its interim final order, the OCC said federal law preempts the Illinois statute, meaning OCC-regulated institutions are not subject to or required to comply with the law. The agency said the move is intended to prevent what it described as imminent negative effects on the payments system while maintaining that other applicable federal laws governing payment card activities remain unchanged.
‘Clarity’ Praised
America’s Credit Unions praised the OCC’s action, with President and CEO Scott Simpson saying it provides needed clarity.
“Hopefully (the OCC) is a persuasive authority for the judges and the court as they consider our challenge on appeal,” said Ann Petros, vice president, policy engagement & credit Union operations. “And we’re hopeful that the NCUA will likewise issue some sort of rulemaking on preemption. Again, we believe that credit unions as federal instrumentalities are entitled to the same level of preemption and NCUA has the authority under the Federal Credit Union Act and with the authorities that credit unions have under their incidental powers to do this sort of rulemaking to establish preemption similar to the preemption that national banks and federal savings associations now enjoy.”
Hopeful, But…
Asked during a media call by the CU Daily just how much weight the court might give the OCC ruling, Petros said the plaintiffs are hopeful. But as she also noted, the 2024 Supreme Court decision in LoperBright Enterprises v. Raimondo overturned the 40-year-old Chevron deference that courts had typically given to regulators.
“But we do still think that this is positive and could certainly weigh in our favor and in the favor of national banks and federal savings associations,” said Petros.
Effect at the State Level
Moreover, Petros said she is hopeful the OCC ruling will dissuade other states from passing card legislation similar to that passed in Illinois.
“But I suspect many states are waiting to see what happens with the lawsuit and how that’s resolved before the 7th circuit,” said Petros. “If that should be a not-so-positive outcome for us. then I think we would be back to the same position with states continuing to test the boundaries and looking to pass or propose similar interchange prohibition bills across the country.”
As the CU Daily has previously reported, enactment of the law will have ramifications for state-chartered CUs, with numerous questions still to be answered.
