WASHINGTON–There continue to be nearly as many questions surrounding the litigation over the Illinois Interchange Fee Prohibition Act as there are card transactions themselves—especially for state-chartered credit unions outside the Prairie State.
As the CU Daily has been reporting, that legislation is set to go into effect July 1 and would ban banks and card networks from charging “swipe” or interchange fees on the tax and tip portions of credit/debit card transactions.
Both America’s Credit Unions and the Illinois CU League have joined with other plaintiffs in filing suit to stop enactment of the legislation. As the CU Daily reported here, the plaintiffs late last week filed a reply brief with the U.S. Court of Appeals for the Seventh Circuit in which they argued the IFPA would “upend the debit- and credit-card operations” of federally chartered financial institutions and “wreak havoc on the national payment-processing system.”
The brief was a response to arguments made earlier this month by the Illinois attorney general and comes as the law is scheduled to take effect July 1.
America’s Credit Unions and the other plaintiffs are also arguing that the Federal Credit Union Act provides the NCUA with the authority to preempt the state law if it significantly affects the powers of credit unions to offer debit and credit cards and to serve their members.
NCUA Urged to Assert Authority
“Most importantly, credit unions as federal instrumentalities, much like national banks and savings associations, are protected from this sort of significant interference, and just because the Federal Credit Union Act does not have explicit language like that of the National Bank Act it doesn’t mean that this isn’t an authority the NCUA has,” Ann Petros, VP-policy engagement and credit union operations at America’s Credit Unions, said during a call with the media. “We believe that they should assert that authority in this instance to clarify that these sort of state laws are not appropriate for federal credit unions going forward.”
The Defense Credit Union Council has made a similar argument.
Waiting on OCC
Petros noted the litigants are also anticipating the release of a potential interim rule from the OCC that would support preemption and find that non-interest charges and fees are protected from state laws like the IFPA. She added the groups are hopeful NCUA will follow suit.
In response to a question from the CU Daily about what fate might lie ahead for state-chartered credit unions, Petros responded that Illinois does have a wild card statute that, should the preemption for FCUs be upheld would cover Illinois’ state-chartered CUs. But that still leaves non-Illinois state-chartered CUs in a difficult spot. Petros said the plaintiffs are arguing that the Dormant Commerce Clause, which is used to challenge state laws that are perceived to protect in-state economic interests by unfairly burdening, discriminating against, or regulating out-of-state commerce, should be in effect.
Transaction Declined?
She added she has heard some anecdotal discussion that some CUs are contemplating just not processing transactions in Illinois, a move she acknowledged would be “incredibly burdensome for anyone traveling through Illinois. So, we hope to not reach that point.”
