The Interchange Ruling That Exempted the Card Networks and Covered Your Credit Union

https://www.youtube.com/watch?v=a2XWSlFfQOQ

A federal judge in Illinois looked at the state's interchange law, considered the Office of the Comptroller of the Currency's position on federal preemption, and drew a line through the financial services industry.

The law does not reach card networks. It does not reach federally chartered banks or other federally chartered savings institutions.

It reaches federally chartered credit unions, state-chartered credit unions, and state-chartered banks.

A statute aimed squarely at interchange ended up exempting the interchange processors and capturing the credit unions. The National Credit Union Administration moved quickly on an interim rule to extend the same exemption to federally chartered credit unions, and the comment period has now closed. That is the agency responding the way you would want it to.

But it solves half the problem, and the remaining half is the one that should worry you.

The dual charter system is the collateral damage

If the interim rule lands the way the industry hopes, federally chartered credit unions get relief. State-chartered credit unions and state-chartered banks do not. They will be carrying a compliance burden — and the associated paperwork and operational overhead — that their federally chartered competitors across the street are not.

Jason Stverak, Chief Advocacy Officer of the Defense Credit Union Council, framed the consequence directly when we spoke: the strength of the credit union movement has always been the dual charter system. When the practical answer to a burdensome rule becomes "just change your charter," you get fewer and fewer state charters. Nobody voted for that outcome. It arrives anyway, one ruling at a time.

And this is not confined to Illinois. Massachusetts convened a commission and has run multiple hearings taking input from retailers, credit unions, card companies, and processors — a genuinely reasonable process that will likely produce something for the next legislative session. Colorado's legislature passed a bill; the governor vetoed it. The next governor may not. The issue has surfaced in a number of other states and in Puerto Rico.

The number your members actually care about

Here is the operational problem nobody debating interchange rates seems to raise.

If five states pass five versions of this, you are not complying with a rule. You are standing up multiple interchange payment networks, each with its own requirements. A credit union in North Dakota has to make sure its member's card works at O'Hare, then Denver, then wherever passes it next.

One Midwest CEO told Jason his plan: send members a note saying that if you travel through Illinois, your card will not work, so take extra cash.

Your members do not know the interchange rate and have never asked. They care about one thing — whether the card works where they are standing. When the answer is "it might not," you have a service failure you did not create and cannot fix alone.

For defense credit unions the stakes run further. Interchange revenue is what funds extending credit to an eighteen-year-old service member with no credit history — a $1,000 card to fix the car or cover groceries until payday. Remove that and the alternative is the payday lender outside the front gate. As Jason put it, the ability to take a risk on someone who has chosen to serve is not a rounding error.

Two more items for your calendar

The NCUA board is short-handed as budget season arrives. Chairman Kyle Hauptman is departing and will be a year past his term as of August 1. John Crews has had his nomination hearing and needs floor action before the August 6 recess. Todd Harper and Tanya Otsuka are litigating in the D.C. Circuit after the Supreme Court's decision in Trump v. Slaughter, arguing that case is confined to the Federal Trade Commission.

The timing matters because the budget consumes the agency's bandwidth, and it is your money. A board member seated in August has a month to get up to speed and shape it. Seated later, he is approving a budget he had no hand in building.

And government funding expires September 30 at midnight with no spending bills signed. During the last shutdowns, credit unions advanced member pay and deferred loan payments. Keesler Federal Credit Union committed reserves to cover member paychecks. Others opened food banks. That is the right instinct — and it moves money out while money coming in drops, which changes your reserve position in a way examiners will see.

What to do about it

If you hold a state charter, quantify your interchange exposure and get it in front of your league now, while the rules are still being written rather than litigated.

If you are contemplating a shutdown response, document it before you need it. Board resolution, program terms, and a modeled effect on your reserve position. When your examiner asks why reserves moved, "we were helping our members" is a far better answer with the board minutes behind it. The NCUA worked with credit unions through the last round, and that was to the agency's credit — but agency grace is not a substitute for your documentation.

And take the Jackson Area Federal Credit Union matter as the prompt it is. The allegations there are serious and deserve investigation. What should not be lost is the internal control question underneath: why would one person be able to control both inflow and outflow? Are your written policies followed, or merely written? Are you getting the audit you are required to get, or the audit you should have — plenty of credit unions around $450 million in assets obtain a CPA opinion audit they are not required to obtain, because it is a better audit.

The banking trades had that story in congressional inboxes within days, framed as an industry-wide indictment, paired with the usual asks about hearings, Form 990s, and tax status. It is worth remembering that the October 2025 FDIC Inspector General report on Pulaski Savings Bank described a $45 million institution with two sets of books and a loss in the range of $28 to $30 million — a larger percentage loss than Jackson Area, and nobody called for hearings on the banking industry.

But scorekeeping is not a governance program. The better response is the one Jason offered: identify the problem, fix the problem, and lead as an industry rather than wait to be led. Hold yourself to the higher standard — because if members lose trust, they leave.