WASHINGTON—NCUA has proposed an interim final rule clarifying federal credit unions’ authority over “non-interest charges and fees,” a move widely viewed as the agency’s response to Illinois’ controversial Interchange Fee Prohibition Act and one that closely tracks recent OCC preemption actions taken on behalf of national banks.
A new filing posted on the Office of Management and Budget’s RegInfo.gov site shows the NCUA submitted an “Interim Final Rule” titled “Preemption – Federal Credit Union Non-Interest Charges and Fees” for regulatory review on May 18. The filing does not yet include the text of the proposal, but the language suggests the agency may be preparing to assert federal authority over interchange related fee powers for federal credit unions ahead of the Illinois law’s July 1 effective date.
The move comes after the Office of the Comptroller of the Currency last month issued both an interim final order formally preempting the Illinois IFPA for national banks and a parallel interim final rule reaffirming national banks’ authority to charge and receive non-interest fees, including interchange fees. The OCC warned the Illinois law would create a “complex, potentially unworkable, and destabilizing standard” for federally regulated institutions and payment systems.
As CUToday.info previously reported, pressure has been mounting on NCUA to provide similar protections for federal credit unions after America’s Credit Unions, the Defense Credit Union Council and other groups argued the agency has authority under the Federal Credit Union Act to preempt state laws that “significantly interfere” with federally chartered credit unions’ powers. Trade groups have warned that failing to act could leave credit unions at a competitive disadvantage if national banks receive federal protection while federal credit unions remain exposed to the Illinois restrictions.
The Illinois IFPA bars interchange fees on the tax and gratuity portions of card transactions and imposes restrictions on the use of payment-card transaction data. Litigation over the law has been ongoing in federal court, with the Seventh Circuit recently vacating portions of an earlier district court ruling and remanding the case following the OCC’s preemption actions.
The NCUA has not yet publicly commented on the pending rulemaking. CUToday.info has reached out to the agency for comment.
CU Trades Respond
“DCUC strongly supports the NCUA’s effort to provide regulatory clarity and reaffirm the federal authority of credit unions to offer secure, efficient, and reliable payment services to their members,” stated Chief Advocacy Officer Jason Stverak. “At a time when states are increasingly pursuing inconsistent and potentially unworkable interchange and payment-related mandates, it is critical that federal credit unions operate under a clear and uniform national framework.”
Stverak emphasized that Defense credit unions serve millions of servicemembers, veterans, Department of Defense personnel, and military families who depend on seamless electronic payment systems, fraud protections, and uninterrupted access to financial services regardless of where they are stationed around the world.
“A fragmented, state-by-state approach to interchange regulation and payment processing requirements threatens to increase operational complexity, elevate compliance costs, and ultimately harm consumers,” he said. “DCUC has consistently urged the NCUA to act on this issue and to ensure that federal credit unions are not placed at a competitive disadvantage compared to federally regulated banks. We appreciate Chairman Hauptman and the NCUA for recognizing the importance of preserving regulatory consistency, operational certainty, and the safety and soundness of the national payments system.”
Stverak said DCUC is looking forward to reviewing the full text of the proposed rule and working closely with the agency to ensure the final framework protects credit unions’ ability to continue serving their members, including those in the military and veteran communities, without unnecessary disruption or conflicting state mandates.
DCUC previously urged the NCUA to oppose the Illinois interchange fee law and highlighted concerns that inconsistent state mandates could fragment the payments system and impose significant burdens on credit unions.
Scott Simpson, America's Credit Unions president/CEO, thanked Hauptman for "his leadership and commitment to ensure credit unions and their 146 million members are protected from harmful efforts to change the national payments system. The NCUA's rulemaking, now submitted to OIRA for review, confirms preemption for federal credit unions as it relates to interchange fees. Paired with the OCC's previous actions, it is clear that state laws cannot encroach against national authorities nor undermine the safety and stability of our national payments system. We appreciate Chairman Hauptman and the agency for engaging with America's Credit Unions on this issue and defending credit unions. As we await the rulemaking's approval and publication, we are relentless in our efforts to challenge the Illinois law and other attempts to create chaos within the payments system."
'Crystal Clear' Case
"The case for federal preemption was always crystal clear, and I'm glad NCUA and other federal regulators stepped up," stated Washington credit union advocate John McKechnie. "I'm also glad that credit unions nationwide are taking this for what it is, which is a reminder that the retailer lobby is going to be relentless and persistent on this and all interchange issues. We need to expect fights at the state level, as well as the federal level, for a long time."