A state law about credit card fees might break the entire U.S. payment system. But that’s exactly what the Defense Credit Union Council (DCUC) is warning could happen if Illinois’s Interchange Fee Prohibition Act goes into effect as written.
The good news? The Office of the Comptroller of the Currency (OCC) just stepped in with what amounts to a regulatory veto, and DCUC is applauding loudly from the sidelines.
NCUA also agreed with the OCC: NCUA Confirms Federal Preemption Over Illinois Interchange Law
What’s Actually Going On Here?
The DCUC recently sent a letter to the OCC backing their decision that federal law trumps Illinois’s new interchange fee restrictions—at least for banks under OCC supervision. In simpler terms: The feds said “not so fast” to a state law that would fundamentally change how credit card transactions work.
The OCC also clarified something important: national banks can still collect interchange fees (those small percentages merchants pay when you swipe your card), even when payment networks help set those rates. This might sound like inside baseball, but it’s actually a huge deal for how money moves around the country.
“DCUC applauds the OCC for taking timely and decisive action to preserve the integrity, consistency, and security of the nation’s payments system,” said Anthony Hernandez, DCUC President and CEO (and retired Air Force Colonel). “For credit unions and the communities they serve, maintaining a reliable national payments framework is essential to ensuring uninterrupted financial access, operational certainty, and continued investment in fraud prevention and payments innovation.”
Why One State’s Law Matters to Everyone’s Wallet
Think of the U.S. payment system like the interstate highway system. It works because everyone follows the same rules. Now imagine if Illinois suddenly required different road signs, speed limits, and traffic laws that applied to any transaction touching the state. Chaos, right?
That’s essentially the problem here. “A national payments system cannot function efficiently if banks, credit unions, merchants, processors, and payment networks are forced to operate under fragmented state-by-state transaction-processing mandates,” wrote Jason Stverak, DCUC’s Chief Advocacy Officer. “The OCC correctly recognized that uniformity is essential to the functioning of modern payment-card systems and that a fractured patchwork of state laws would undermine that uniformity and materially disrupt interstate commerce.”
This matters especially for institutions serving customers across state lines—like, say, credit unions that serve military families who move frequently.
What Does Illinois’s Law Actually Do?
The Illinois statute gets into the weeds pretty quickly. It prohibits interchange fees on taxes and tips, creates a manual refund process, slaps civil penalties on violators, and restricts how payment transaction data can be used. Basically, it reaches deep into the guts of how payment networks price and process transactions.
Here’s where it gets expensive: The OCC found that current payment systems literally can’t comply with Illinois’s requirements without major overhauls. We’re talking substantial technological upgrades across payment networks, financial institutions, and merchants.
The Price Tag Is… Yikes
The numbers the OCC calculated are eye-watering:
- More than $232 million in initial system upgrades for OCC-supervised banks
- Approximately $145 million per year in manual processing costs for several years
- Around $200 million in lost revenue for card issuers
And that’s just for banks under OCC supervision. The ripple effects would hit credit unions, merchants, and ultimately consumers who’d face reduced services, higher costs, and the delightful uncertainty of not knowing if their card would even work at checkout.
“Those are exactly the kinds of burdens that would ultimately be borne by consumers through reduced services, higher costs, and less reliable payment access,” DCUC noted in their letter.
It’s Not Just About Money—It’s About Security
One of the more concerning aspects of the Illinois law involves restrictions on transaction data use. The OCC pointed out something critical: that data isn’t just sitting around for fun. Financial institutions use it for fraud prevention, cybersecurity, risk management, and improving consumer services.
Limiting access to that data doesn’t just create operational headaches—it could actually make the payment system less secure. Not exactly the outcome anyone wants.
Why the Military Community Is Watching Closely
“Service members, veterans, and their families depend on a reliable national payments infrastructure, not one that changes from state to state based on conflicting transaction-processing mandates,” DCUC emphasized. When you’re stationed in California but your credit union is based in Virginia and you’re buying something from a merchant in Texas, you need the system to just work.
That’s why DCUC is calling on the National Credit Union Administration to take similar protective action for federal credit unions, ensuring a uniform national framework.
The Bigger Picture
Beyond the immediate concerns, there’s worry about what gets sacrificed if revenue from interchange fees takes a hit. We’re talking about funding for fraud prevention services, rewards programs, and investment in new payment technologies. Basically, all the stuff that makes modern banking convenient and secure.
The OCC’s action comes with good timing—Illinois’s law is set to take effect July 1, 2026, giving the industry clarity before potential chaos ensued.
“The OCC’s interim final order and companion interim final rule are necessary, well-reasoned, and vital to preserving the integrity of the national banking system and the broader payments ecosystem on which consumers, businesses, and military communities rely every day,” Stverak said.
Translation: Sometimes federal oversight isn’t about stomping on states’ rights—it’s about making sure your credit card works the same way whether you’re in Springfield, Illinois or Springfield, Massachusetts.