NCUA interim final rule confirms preemption of IFPA

The NCUA’s interim final rule that confirms the Federal Credit Union Act preempts the Illinois Interchange Fee Prohibition Act (IFPA) and other similar state laws is set to publish tomorrow. It goes into effect June 30, 2026.

“Americans rely on the electronic payments system every day for its stability and predictability. The Illinois law, driven by mega-retailers, would disrupt that system, create confusion for millions of consumers, and encroach on federal law. We appreciate Chairman Hauptman and the NCUA for their leadership in preventing a patchwork of state laws by reaffirming that credit unions are exempt from state regulations affecting non-interest charges and fees, including interchange fee prohibitions. With this federal preemption confirmed, we will continue our relentless advocacy to protect the safety and stability of the national payments system for our credit union members and the 146 million Americans who depend on them," said  Scott Simpson, president/CEO of America’s Credit Unions, and Libby Calderone, president/CEO of Illinois Credit Union League.

The interim final rule amends the NCUA’s regulations, part 701, adding a new section 701.5 to explicitly state that federal credit unions may charge non-interest charges and fees and that state law limiting those charges are preempted. “The IFR is intended to preempt any state law affecting the non-interest charges and fees related to payment card services, including the IFPA,” the agency explains. In clarifying the need for this rulemaking, the NCUA notes that “the IFPA creates a complex and potentially unworkable standard, and it imposes significant potential liability for non-compliance.”

Although the NCUA and the Office of the Comptroller of the Currency (OCC) have now published rules confirming federal preemption, ultimately, the courts will determine how much deference to give to the NCUA and OCC rules and whether national banks and federal credit unions are preempted from complying with the IFPA. 

The Illinois General Assembly passed a one-year extension to a July 1, 2027, effective date before its 2026 session ended; it is expected to be signed by the governor soon. 

The IFPA would prohibit the collection of interchange fees for the tax and gratuity portions of card transactions in Illinois. America’s Credit Unions, the Illinois Credit Union League, American Bankers Association, and the Illinois Bankers Association have challenged the law in court, noting that it illegally encroaches on federal law. 

The U.S. Court of Appeals for the Seventh Circuit remanded the challenge to the district court earlier this month in response the OCC’s actions taken in April. The U.S. District Court for the Northern District of Illinois recently ruled on the remanded challenge, issuing a permanent injunction that includes banks, out-of-state state-chartered banks, federal savings associations, and payment networks.