WASHINGTON—The Merchants Payments Coalition (MPC) is urging the National Credit Union Administration (NCUA) to withdraw its interim final rule on federal credit union non-interest charges and fees, arguing the agency exceeded its statutory authority and improperly sought to preempt state interchange fee laws.
In a comment letter submitted to the NCUA, the coalition said the rule raises significant legal and policy concerns, including questions involving federal preemption, antitrust principles and the Administrative Procedure Act.
The interim final rule addresses federal credit union authority over non-interest charges and fees and seeks to clarify the NCUA’s position on federal preemption, including in relation to the Illinois Interchange Fee Prohibition Act (IFPA).
The coalition, which represents a range of merchants and trade associations, including grocery stores, convenience stores, restaurants, fuel retailers, bookstores, online merchants and other businesses, said the rule would have “far-reaching effects” on merchants, consumers and competition because interchange fees are embedded in nearly every payment card transaction.
MPC’s Issues With Rule
According to MPC, the rule:
- Exceeds the NCUA’s authority under the Federal Credit Union Act.
- Adopts an overly broad interpretation of federal preemption.
- Conflicts with established federal antitrust principles.
- Relies on what it called an inaccurate understanding of the modern payments system.
- Fails to provide a legal basis for preempting the Illinois Interchange Fee Prohibition Act.
- Raises procedural concerns under the Administrative Procedure Act, the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness Act.
The coalition also argued the NCUA should allow ongoing court challenges involving the Illinois law to proceed rather than intervene through regulation.
“Rescinding the Final Rule would allow these important legal questions to be resolved through the normal judicial process while preserving confidence that NCUA is acting within the authority Congress has delegated to it,” the coalition wrote.
Illinois Law Promotes Competition, Says MPC
The coalition defended the Illinois Interchange Fee Prohibition Act, saying state laws regulating interchange fees help restore competition by preventing payment networks from charging fees on portions of transactions that merchants do not retain, such as sales taxes and gratuities.
According to MPC, consumers and businesses in Illinois paid hundreds of millions of dollars in interchange fees on sales tax amounts during 2024, costs it said are ultimately passed on through higher prices.
The coalition also challenged the payments industry’s justification for charging interchange fees on taxes and tips, arguing Federal Reserve data show merchants absorb a significant share of fraud losses on debit card transactions.
That, MPC said, undermines claims that financial institutions need to collect percentage-based interchange fees on taxes and gratuities to offset fraud risks.
Compliance ‘Technically Feasible’
The coalition rejected arguments that complying with the Illinois law is technically impractical.
According to the letter, payment networks and merchants already exchange transaction-level data that identifies taxes and gratuities, making it possible to calculate interchange fees only on the underlying purchase amount.
MPC added that payment networks already process tax-related transaction data for other purposes and that the Illinois law allows merchants to submit tax information after a transaction and receive reimbursement when necessary.
“The issue is not whether the systems exist to implement the law; rather, the issue is whether the payment networks are willing to use existing capabilities in a manner that benefits merchants and consumers,” the coalition wrote.
Rule Exceeds Federal Authority, Group Argues
The coalition also argued the NCUA improperly expanded federal credit union authority by removing language limiting fees to members.
According to MPC, the Federal Credit Union Act authorizes credit unions to lend to members but does not authorize the agency to regulate fees imposed on non-member merchants or extend federal preemption to those activities.
The letter also contended the rule creates competition concerns because interchange fees are established by payment networks such as Visa and Mastercard rather than individual credit unions.
The coalition argued that allowing payment networks to establish fee schedules across competing financial institutions raises antitrust concerns and is inconsistent with the rule’s suggestion that fees result from independent competitive decisions by individual credit unions.
In addition, MPC argued that federal preemption cannot extend to payment networks because they are independent third parties rather than federal credit unions.
Other Objections Raised
The coalition also challenged the rulemaking process, saying the NCUA failed to adequately support the rule or fully evaluate its economic effects on merchants, particularly small businesses.
According to the letter, the agency did not sufficiently address evidence regarding how interchange fees are established or whether payment systems can comply with state laws such as the Illinois statute.
MPC further argued the agency imposed binding legal requirements before completing the public comment process, raising questions about compliance with procedural requirements under the Administrative Procedure Act.
The coalition urged NCUA to withdraw the interim final rule, arguing it exceeds the agency’s statutory authority, improperly expands federal preemption, creates potential conflicts with antitrust law and fails to satisfy applicable federal rulemaking requirements.
