- Key insight: A federal court expanded its June injunction to federal credit unions after the National Credit Union Administration asserted exclusive authority over their interchange fees.
- Supporting data: NCUA's June interim final rule followed an OCC rule issued in April that similarly asserted federal preemption of Illinois' law.
- Forward look: The ruling could return to the Seventh Circuit, which previously remanded the case after the OCC's intervention.
A federal judge on Tuesday added credit unions to the list of entities exempt from an
The ruling expands the scope of an injunction issued in June that exempts banks and payment networks — two industries challenging the law — from being subject to the measure. In the opinion, Virginia M. Kendall, Chief Judge of the U.S. District Court for the Northern District of Illinois, said it was a straightforward decision.
"The federal government has exercised that authority within its statutory bounds, and the Court is obligated to respect it," Kendall wrote. "The Court's analysis with regard to the Interchange Fee Limitation now brings federal credit unions in line with the financial entities discussed in the June Ruling."
The ongoing lawsuit centers on the Illinois Interchange Fee Prohibition Act that would ban firms from charging swipe fees on sales tax and gratuity portions of charges. The law has pitted trade groups representing merchants and the financial industry against each other and comes as a growing number of states have attempted to block interchange fees on portions of transactions.
Banks and other card issuers say those interchange fees are necessary to pay for fraud prevention, the cost of processing the transaction and offsetting the costs of credit card rewards. The fees are set by the card networks like Visa or Mastercard and often are around 2% to 3% of a transaction.
A spokesperson for the credit union lobbying group America's Credit Unions celebrated the ruling, saying it "validates" the view that federal credit unions are exempt from state limits on swipe fees.
"This clarification stemmed from the NCUA's interim final rule that brought parity for federal credit unions with other preempted financial institutions," said ACU's President and CEO Scott Simpson. "Although this does protect some credit unions, America's Credit Unions alongside our partners at the Illinois Credit Union League are continuing our legal challenge and other efforts to ensure that all credit unions are protected and their members can continue to enjoy a safe and reliable payments system."
A federal judge
The National Credit Union Administration also
Kendall wrote that the NCUA's expansion of the preemption provision "stands on shakier ground" because the underlying law authorizes federal credit unions to extend lines of credit to their members, while the NCUA's revised regulation removed that limitation and asserted preemption authority without regard to whether the line of credit involved a credit union member.
"This Court need not decide whether the text of [NCUA's federal preemption regulation] sits outside its statutory authority because this motion resolves itself elsewhere in the [Interim Final Rule]," Kendall wrote in her opinion. "If a federal credit union's coordination with third parties for fee-setting related to members' credit lines is necessary to the maintenance of those credit lines, then the IFPA 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives' of that power.'"
