Credit unions back NCUA in Illinois fee fight.
Banks and credit unions are presenting a rare united front, arguing that federal law — not state legislation — should govern interchange fees charged by federally chartered credit unions.
Credit unions and banks, often on opposite sides of financial policy debates, have joined forces to urge the National Credit Union Administration to finalize a rule they say protects federally chartered credit unions from state attempts to regulate interchange fees.
In comments filed Thursday, America’s Credit Unions, the Illinois Credit Union League, the American Bankers Association and the Illinois Bankers Association endorsed the NCUA’s interim final rule, arguing that the Illinois Interchange Fee Prohibition Act, or IFPA, and similar state laws are preempted by the Federal Credit Union Act.
The organizations said the NCUA’s proposal correctly affirms that federal credit unions have broad authority to collect noninterest fees, including interchange fees tied to debit and credit card transactions.
“In short, the Federal Credit Union Act, and the NCUA regulations implementing it, plainly preempt the IFPA and any similar state or local intrusions on federal credit unions’ power to collect interchange fees,” the groups wrote. “The NCUA’s interim final rule commendably underscores that point, helping shield federal credit unions and the broader American economy from the costs of intrusive legislation.”
The rule was issued after a federal district court decision raised questions about whether Illinois could regulate interchange fees charged by federally chartered credit unions. The trade groups contend the ruling created uncertainty that could invite additional state and local efforts to regulate federally authorized fee structures.
The NCUA’s interim rule seeks to clarify two key points: that federal preemption over credit union lending authority is not limited to charges imposed directly on members, and that federal credit unions have broad authority to assess and receive noninterest fees, including interchange revenue generated through payment card transactions
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In their filing, the associations argued that interchange fees are inseparable from the payment services federal credit unions are authorized to provide. They said those fees compensate issuers for maintaining accounts, extending credit, authorizing transactions, monitoring fraud and supporting the payment network.
“The power to charge fees for the services federal credit unions provide is inherent in their other powers,” the letter states, arguing that a credit union could not effectively carry out its mission if it were unable to receive compensation for services it provides.
The filing traces that authority to the Federal Credit Union Act, which grants federal credit unions broad powers to make loans, offer deposit accounts and exercise incidental powers necessary to conduct business. The groups argue that those statutory powers necessarily include issuing payment cards and collecting the fees that support those services.
Beyond the legal arguments, the organizations warned that allowing state interchange restrictions to apply to federal credit unions could carry broader economic consequences.
They said complying with the Illinois law would require sweeping changes to payment card systems and processing infrastructure, costs they argued would ultimately be passed on to consumers.
The filing also emphasizes that Congress created federal credit unions to expand access to affordable credit through a national cooperative system, arguing that allowing individual states to regulate federally authorized fee structures would undermine that objective.
While the NCUA’s interim final rule largely mirrors existing federal authority, the associations urged the agency to make the rule permanent, saying it removes uncertainty and reinforces longstanding federal preemption over state laws affecting federally chartered credit unions.
Ken McCarthy is manager of marketing communications at Tyfone, where he monitors the credit union industry and contributes to conversations shaping its future. He previously covered credit unions and community banking for American Banker and S&P Global Market Intelligence. He holds a journalism degree from Point Park University and has more than 15 years of experience covering financial services. He is also the author of three literary fiction novels.
