NCUA and OCC Take Action to Preempt Illinois’ Interchange Law

In recent weeks, the Office of the Comptroller of the Currency (OCC) and the National Credit Union Administration (NCUA) have taken actions aimed at shielding the financial institutions they supervise from the Illinois Interchange Fee Prohibition Act (IFPA). The law, enacted in 2024, restricts interchange fees on the tax and gratuity portions of payment card transactions. On April 29, the OCC issued an interim final rule clarifying that national banks may charge non-interest fees, including interchange fees, even when those fees are set by third parties, and the agency simultaneously issued an order declaring that national banks are not subject to the requirements of the IFPA. The NCUA issued a substantially similar interim final rule on June 9, clarifying that federal credit unions (FCUs) may also charge non-interest fees, including interchange fees. This client alert discusses those agency actions, the ongoing litigation and the remaining uncertainty surrounding the IFPA’s implementation.

Background

Illinois enacted the IFPA on June 7, 2024. The law prohibits card issuers, payment card networks, acquirer banks and other participants from receiving or charging a merchant any interchange fee on the portion of a payment card transaction attributable to state or local tax or to a gratuity. The IFPA defines an interchange fee as a fee established, charged or received by a payment card network to compensate the issuer for its involvement in an electronic payment transaction. The prohibition applies where the merchant transmits the tax or gratuity amount to the acquirer at the point of authorization or settlement. If the tax or gratuity is not submitted at the point of authorization, a merchant may submit the relevant documentation within 180 days, after which the issuer has 30 days to credit the merchant for any interchange fee charged on the tax or gratuity amount. Violations carry a civil penalty of $1,000 per transaction. The IFPA also contains a data use limitation that prohibits any entity other than the merchant involved in a transaction from distributing, exchanging, transferring or disseminating any transaction data except to facilitate or process the transaction or as required by law.

Legal Challenges to the IFPA

In August 2024, a group of bank and credit union associations sued the state of Illinois in the U.S. District Court for the Northern District of Illinois to prevent the IFPA from taking effect, arguing that the National Bank Act, the Home Owners’ Loan Act and the Federal Credit Union Act preempt the IFPA, in Illinois Bankers Association v. Raoul. In December 2024, the court granted a preliminary injunction barring enforcement of the interchange fee prohibition against national banks and federal savings associations.

The court reversed course in February 2026. In a summary judgment opinion, the court held that federal law did not preempt the interchange fee prohibition, reasoning that the OCC’s fee regulation at 12 CFR 7.4002 was not designed to protect fees centrally established by a third-party company. The court reached a parallel conclusion regarding FCUs, finding that NCUA’s lending preemption rule at 12 CFR 701.21(b) did not apply to interchange fees because such fees are not directly tied to loan interest or repayment terms. However, the court found that federal law preempted the data-use limitation in the IFPA for both national banks and FCUs.

OCC Interim Final Rules

On April 29, the OCC issued two items related to the IFPA. The first was an interim final order that stated that the National Bank Act and the Home Owners’ Loan Act, along with their implementing regulations, “preempt the IFPA’s interchange fee prohibition and, separately, the IFPA’s data use limitation.” The second action was an interim final rule clarifying that national banks may assess non-interest charges and fees, including interchange fees. The rule adds a definition of “charge” providing that a national bank may charge fees directly or indirectly, through intermediaries, partners, payment networks or other third parties, including through a fee-sharing or similar economic relationship. It removes the word “customer” from the operative authority to confirm that a bank may receive compensation whether or not it comes from the party receiving the product or service, and it adds interchange fees as a nonexclusive example of the charges and fees covered. The rule also states that a bank’s decisions about whether to charge fees set by or in consultation with third parties are business judgments to be made by each bank according to safe and sound banking principles. Both rules are effective June 30, and comments for both rules were due by May 29.

NCUA Interim Final Rule

Following the OCC’s preemption order and interim final rule, the NCUA issued an interim final rule on June 9 that adopts language substantially similar to the OCC’s. The rule states that the NCUA believes that the Federal Credit Union Act already allows FCUs to charge interchange fees; however, it is issuing the rule to expressly clarify that FCUs have this authority. The rule adds a new 12 CFR 701.5 that consolidates NCUA’s existing preemption provisions governing share accounts and lending and adds a new provision addressing non-interest charges and fees. Similar to the OCC rule, the NCUA defines “charge” to include fees obtained directly or indirectly through third parties such as payment networks and interchanges, and it confirms that FCUs may charge non-interest fees, including interchange fees from credit and debit card operations, even where those fees are set by or in consultation with third parties. The rule is effective June 30, with comments due by July 9.

The NCUA’s authority is limited to federal credit unions. State-chartered credit unions, even those that are federally insured, are not supervised by the NCUA for purposes of fee authority and are instead subject to the rules and regulations of their respective state chartering authorities. Because the NCUA’s interim final rule is grounded in its supervisory authority over FCUs under the Federal Credit Union Act, it does not extend to state-chartered credit unions, which remain subject to the IFPA absent a separate state-level exemption or preemption determination. As a result, state-chartered credit unions operating in Illinois will need to comply with the IFPA’s interchange fee prohibition once it takes effect. That would change only if the state legislature amends the law, a court extends preemption beyond federally chartered institutions, or a court otherwise finds the law invalid.

June 1 Court Decision

Following the release of the OCC’s interim final rule, the U.S. District Court for the Northern District of Illinois, on June 1, granted a permanent injunction preventing Illinois from enforcing the IFPA’s interchange fee prohibition against national banks, certain out-of-state banks, federal savings associations and payment card networks. The court also left intact its prior ruling that the IFPA’s data use limitation is preempted when applied to national banks, FCUs, out-of-state chartered savings associations and out-of-state chartered savings banks.

Next Steps

The OCC actions and the permanent injunction in Raoul substantially insulate national banks, federal savings associations and certain out-of-state, state-chartered banks and payment card networks from the IFPA’s interchange fee limitations. The NCUA’s interim final rule provides a regulatory preemption argument for FCUs, but they remain on less settled ground without a court ruling applying the rule to the IFPA. The NCUA does not have the same preemption authority as the OCC. Under Section 1044 of the Dodd-Frank Act (P.L. 111-203), the OCC is granted the authority to preempt state consumer financial laws that would prevent or significantly interfere with a national bank’s exercise of its powers. Dodd-Frank codified the “prevent or significantly interfere” standard, requiring the OCC to make a case-by-case determination that a state law has such an effect before issuing a preemption determination. Section 1044 also grants the OCC rulemaking authority to implement preemption determinations consistent with this standard. The NCUA, by contrast, does not possess a similar statutory preemption authority, which is why its interim final rule relies on the agency’s general rulemaking powers under the Federal Credit Union Act rather than an express preemption framework.

The preemption actions carry implications beyond Illinois, which was the first of several states to pursue interchange restrictions on taxes and gratuities. The most advanced effort was in Colorado, where the state legislature passed SB26-134 in May 2026, a bill modeled on the IFPA that would have barred payment card networks and financial institutions with more than $60 billion in assets from charging interchange fees on the sales tax portion of transactions. Gov. Jared Polis (D-CO) vetoed the bill on June 3, citing implementation concerns and pointing specifically to the federal resistance to the IFPA, including the OCC’s interim final rule, as evidence that a state-only approach might never take effect.

The IFPA’s path to implementation remains unsettled. Earlier this year, the Illinois General Assembly delayed the effective date a second time, to July 1, 2027, pending Gov. J.B. Pritzker’s signature. If signed into law, the implementation delay would provide financial institutions and the courts additional time to address the legal challenges, while leaving the law’s practical difficulties unresolved. Illinois-chartered banks and state-chartered credit unions, which fall outside both the federal rules and the Raoul injunction, remain covered by the IFPA and should continue planning for compliance ahead of the 2027 effective date.

Affected institutions should monitor the status of the Illinois legislation, the ongoing litigation and any other similar legislation that may emerge in other states. The Brownstein Financial Services and Government Relations teams are available to assist with compliance assessments, comment drafting and related outreach.

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THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING NEW RULES ON INTERCHANGE FEES. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.