Merchants encourge NCUA to withdraw flawed rule blocking Illinois swipe fee law

WASHINGTON — The Merchants Payments Coalition today urged the National Credit Union Administration to withdraw a rule aimed at blocking Illinois’ ban on swipe fees on sales tax and tips, saying the rule is flawed and will drive up prices in Illinois.

“The rule raises substantial legal and policy concerns that warrant reconsideration,” MPC said in comments filed with the agency. “It appears to authorize conduct that is difficult to reconcile with established federal antitrust principles, departs from longstanding expectations regarding competitive markets, exceeds NCUA's authority under the Federal Credit Union Act, and adopts an overly broad interpretation of federal credit union preemption.”

The rule “rests on an inaccurate understanding of the modern credit and debit card payments ecosystem and, as a result, does not provide a sound legal basis” for preempting the Illinois Interchange Fee Prohibition Act, MPC said. And with the rule taking effect June 30 — more than a week before today’s deadline for comments — it was adopted without completing the public notice and comment period required under the Administrative Procedure Act.

The NCUA rule, which contends that the Federal Credit Union Act preempts the Illinois law from applying to federally chartered credit unions, was issued June 9, following an April rule issued by the Office of the Comptroller of the Currency saying that the National Bank Act preempted the law for federally chartered banks.

Both rules were issued even though U.S. District Court Judge Virginia Kendall decided in February that the Illinois law is not preempted because swipe fees are set by Visa and Mastercard, which are not banks and therefore not subject to federal banking law. Banks appealed the ruling to the 7th U.S. Circuit Court of Appeals, which sent the case back to Kendall after the OCC issued its rule. On June 1, Kendall handed down a new order blocking the Illinois law, citing the OCC rule. The state is expected to appeal, and the OCC and NCUA rules are expected to be challenged as well.

“By issuing this rule, the (NCUA) has taken an unusual step into an area of active legal dispute that is already being addressed through the judicial process,” MPC said. “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.”

MPC said banks’ and credit unions’ claims that the Illinois law is unworkable because sales tax and tips cannot be separated from the main part of a transaction “does not withstand scrutiny” because payment networks already transmit the needed data. Claims that swipe fees from taxes and tips are needed to pay for fraud protection are unfounded because merchants bear a significant portion of fraud losses.

The rule “creates significant competition concerns” and “raises substantial antitrust concerns” by allowing third parties like Visa and Mastercard to establish fees on behalf of otherwise-competing federal credit unions, MPC said. As with Judge Kendall’s ruling on banks’ claim of preemption, Visa and Mastercard “are not federal credit unions and are not entitled to FCUA preemption protections.”

The OCC rule also allows third parties to set fees, and MPC warned last week that the two agencies doing so would allow the price-fixing of charges such as late fees, overdraft or over-limit fees, annual card fees and ATM fees and send them “soaring.”

Amid the disputed rules and legal challenges, the Illinois legislature has delayed implementation of the ban until July 1, 2027. Once it takes effect, itis expected to save Illinois business and their customers over $500 billion a year.

The developments come as Congress is considering the Credit Card Competition Act, which President Donald Trump has endorsed “to stop the out of control Swipe Fee ripoff.” Overall credit and debit card swipe fees have increased 80% since the pandemic, reaching a record $198.25 billion last year. They are most merchants’ highest operating cost after labor and are too much to absorb, driving up prices by more than $1,200 a year for the average family.

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