National Credit Union Administration
Illinois merchants could keep card fees on tips, taxes
The federal rule says credit unions may still collect card interchange fees on the slice of a sale made up of sales tax and gratuities. The National Credit Union Administration says that should override Illinois’ 2024 law.
For Illinois merchants, the fight is over who gets to tax the tax slice of a card purchase. NCUA says federal credit unions may keep collecting interchange fees, even as state law tries to block them on the portion of a transaction made up of sales tax and tips.
- NCUA says federal credit unions can still collect interchange fees.
- Illinois tried to block those fees on taxes and gratuities.
- The rule strengthens the agency’s preemption argument.
- Merchants are the ones most likely to feel the cost change.
- The National Credit Union Administration is taking a fresh run at the fight over card-fee limits
The National Credit Union Administration is taking a fresh run at the fight over card-fee limits. In an interim final rule, the federal agency says federal credit unions can assess and collect non-interest charges and fees, including interchange fees on credit and debit card transactions, even as Illinois’ Interchange Fee Prohibition Act tries to bar those fees on the portion of a purchase made up of state and local taxes and gratuities.
For merchants, that is not an abstract legal dispute. Interchange fees are part of the cost of accepting cards, and Illinois passed its law to keep federal credit union issuers and acquirers from charging on the tax and tip slice of a sale.
The fee NCUA is trying to protect
NCUA is not framing this as a narrow cleanup. The agency says the power to charge non-interest charges and fees includes the power to assess, collect, impose, levy, receive, reserve, take or otherwise obtain them. By saying that out loud, it is trying to make the federal case that state limits cannot cut into fees federal credit unions are allowed to charge under its rules.
The rule also tries to clarify and consolidate the agency’s preemption rules, including 701.21(b). In plain terms, NCUA is saying federal credit unions should not have to follow a state ban when the federal rule gives them the authority to collect the fee in the first place.
Why Illinois is the flashpoint
Illinois passed the Interchange Fee Prohibition Act in 2024. The point of the law was direct: keep federal credit union card issuers and acquirers from receiving or charging interchange fees on the tax and gratuity portion of a transaction.
That fight is already alive in court. A federal district court in Illinois recently held that NCUA rules do not preempt the state law as it applies to federal credit union interchange fees. The agency’s interim final rule, which also seeks comment, looks like an effort to shore up the federal argument rather than end the dispute.