What happens behind the scenes when you tap your card at the coffee shop?
Turns out, there’s a whole ecosystem keeping that transaction secure, seamless, and fraud-free. And in Massachusetts, that ecosystem might be heading for some turbulence.
On June 15th, Jason Stverak, Chief Advocacy Officer for the Defense Credit Union Council (DCUC), stood before the Massachusetts Special Legislative Commission with a clear message: state-level interchange legislation sounds simple on paper, but the real-world consequences could hit military families and everyday consumers where it hurts.
What’s Actually at Stake Here?
Let’s break this down. Interchange fees are those small charges that merchants pay when you swipe your card. They help fund everything from fraud protection to cybersecurity to those rewards points you’ve been hoarding for your next vacation. Some lawmakers, inspired by Illinois’ approach, want to restrict how these fees work at the state level.
Sounds reasonable, right? The problem is, these proposals don’t just cap fees. They create a tangled web of operational requirements that could fundamentally reshape how payment systems work. For defense credit unions serving military families who move across state lines constantly, this patchwork approach could turn a simple card transaction into a compliance nightmare.
Why Military Families Should Care
Military families already deal with enough complications. They move frequently, deploy internationally, and need financial services that work consistently no matter where they are. A state-by-state payment system? That’s the opposite of helpful.
“State interchange laws may sound narrow, but in practice they reach deeply into how the payments system actually works,” Stverak testified. He emphasized that for defense credit unions, interchange revenue isn’t some corporate profit padding. It funds fraud prevention, cybersecurity, financial counseling, deployment relief programs, and those on-base access points that exist specifically because military members need them.
The Real-World Impact: A Cautionary Tale
Peter Rice, President and CEO of Hanscom Federal Credit Union, brought some serious perspective to the hearing. He pointed out that Massachusetts residents lost nearly $339 million to cybercrime in 2024 alone. And guess who refunded that money? Banks and credit unions.
Rice dropped an analogy that really drives the point home: Imagine requiring National Grid to build power plants, maintain transmission lines, restore service after storms, and keep the lights on. Then imagine redirecting part of their revenue to retailers while National Grid still carries all the responsibility, risk, and costs. Sounds absurd, right? That’s essentially what’s being proposed for the payment system.
Been There, Done That, Didn’t Work
Here’s the kicker: We’ve tried this before. Remember the Durbin Amendment? Congress already ran this experiment with interchange restrictions. The results weren’t pretty:
- Free checking accounts dropped from 60% to just 20% nationally
- Monthly checking account fees jumped from $4.34 to $7.44
- Minimum balance requirements increased by 25%
- Only 1% of merchants actually lowered prices, according to a Richmond Federal Reserve study
The costs didn’t vanish. They just shifted to consumers in different ways.
The Charter Competition Problem
There’s another wrinkle that might sound bureaucratic but actually matters a lot. The National Credit Union Administration (NCUA) recently issued a rule clarifying that federally chartered credit unions have federal preemption over certain state restrictions. State-chartered credit unions? Not so much.
This creates a competitive imbalance. If state-level interchange rules make operations significantly harder for state-chartered institutions, you’ll see pressure for those credit unions to convert to federal charters just to stay competitive. That weakens the dual-charter system that’s been a cornerstone of the credit union movement for decades.
What Lawmakers Need to Consider
Stverak’s message to the Massachusetts commission was straightforward: These aren’t theoretical concerns. They’re practical impacts that affect real people and real communities.
The proposals floating around in Massachusetts, Pennsylvania, New York, New Jersey, and Colorado go far beyond simple fee caps. They mandate specific tax and gratuity data during transactions, create documentation-and-refund processes, prohibit workarounds, impose civil penalties up to $1,000 per transaction, and restrict how transaction data can be used. That’s not tweaking the system. That’s rewriting it from scratch, one state at a time.
The Trust Factor
Rice framed the entire issue around trust, and he’s got a point. Every time you tap your card, you’re making three assumptions: your information is safe, your money is safe, and if something goes wrong, someone will fix it. This trust is the foundation of modern commerce.
The question is: who pays to maintain that trust? When fraud happens, community financial institutions answer the phone, investigate claims, absorb losses, and restore confidence. If you cut their revenue while maintaining their responsibilities, something’s got to give.
The Bottom Line
The DCUC isn’t saying the payment system is perfect or that concerns about merchant costs aren’t legitimate. They’re saying that state-level patchwork solutions to a national payment network create more problems than they solve, especially for the military families and consumers these credit unions serve.
As Massachusetts lawmakers continue their deliberations, the credit union perspective is clear: payment system reliability, military family needs, and competitive fairness between charter types should all be part of the equation. Otherwise, we might find ourselves repeating the same mistakes we’ve already made, just with different paperwork.