Rule2026-11559
Preemption-Federal Credit Union Non-Interest Charges and Fees
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 9, 2026
Effective
June 30, 2026
Issuing agencies
National Credit Union Administration
Abstract
The NCUA Board is adopting an interim final rule to clarify federal credit unions' (FCUs) power to charge non-interest charges and fees includes the power to assess, collect, impose, levy, receive, reserve, take, or otherwise obtain non-interest charges and fees, including interchange fees from credit and debit card operations. Further, the interim final rule explains that FCUs may charge non- interest charges or fees, even when such charges and fees are set by or in consultation with third parties. NCUA invites public comments on this interim final rule.
Full Text
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<title>Federal Register, Volume 91 Issue 110 (Tuesday, June 9, 2026)</title>
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[Federal Register Volume 91, Number 110 (Tuesday, June 9, 2026)]
[Rules and Regulations]
[Pages 34725-34733]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-11559]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 91, No. 110 / Tuesday, June 9, 2026 / Rules
and Regulations
[[Page 34725]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AG11
Preemption--Federal Credit Union Non-Interest Charges and Fees
AGENCY: National Credit Union Administration (NCUA).
ACTION: Interim final rule; request for comment.
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SUMMARY: The NCUA Board is adopting an interim final rule to clarify
federal credit unions' (FCUs) power to charge non-interest charges and
fees includes the power to assess, collect, impose, levy, receive,
reserve, take, or otherwise obtain non-interest charges and fees,
including interchange fees from credit and debit card operations.
Further, the interim final rule explains that FCUs may charge non-
interest charges or fees, even when such charges and fees are set by or
in consultation with third parties. NCUA invites public comments on
this interim final rule.
DATES: The interim final rule is effective June 30, 2026. Comments on
the interim final rule must be received on or before July 9, 2026.
ADDRESSES: Comments may be submitted in one of the following ways.
(Please send comments by one method only):
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
The docket number for this rule is NCUA-2026-1189. Follow the ``Submit
a comment'' instructions. If you are reading this document on
<a href="http://federalregister.gov">federalregister.gov</a>, you may use the green ``SUBMIT A PUBLIC COMMENT''
button beneath this rulemaking's title to submit a comment to the
<a href="http://regulations.gov">regulations.gov</a> docket. A plain language summary of the rule is also
available on the docket website.
<bullet> Mail: Address to Melane Conyers-Ausbrooks, Secretary of
the Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
<bullet> Hand Delivery/Courier: Same as mailing address.
Mailed and hand-delivered comments must be received by the close of
the comment period.
Public inspection: Please follow the search instructions on <a href="https://www.regulations.gov">https://www.regulations.gov</a> to view the public comments. Do not include any
personally identifiable information (such as name, address, or other
contact information) or confidential business information that you do
not want publicly disclosed. All comments are public records; they are
publicly displayed exactly as received and will not be deleted,
modified, or redacted. Comments may be submitted anonymously. If you
are unable to access public comments on the internet, you may contact
NCUA for alternative access by calling (703) 518-6540 or emailing
<a href="/cdn-cgi/l/email-protection#4e01090d032f27220e202d3b2f60292138"><span class="__cf_email__" data-cfemail="6e21292d230f07022e000d1b0f40090118">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT: Office of General Counsel: Rachel
Ackmann, Senior Attorney, at (703) 548-2601; John Brolin, Senior
Attorney, at (703) 518-6438, or at 1775 Duke Street, Alexandria, VA
22314.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Background
Federal credit unions (FCUs) routinely rely on third parties for a
range of products and services.\1\ In particular, third parties are
crucial to FCUs' provision of payment cards, which are vital and deeply
rooted components of the American and global economy. These cards are
among the most universally accepted and common methods of payment and
are routinely used by millions of consumers to pay for products and
services worldwide.\2\
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\1\ See, e.g., SL No. 07-01 Evaluating Third Party Relationships
(Oct. 2007), available at <a href="https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/evaluating-third-party-relationships-0">https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/evaluating-third-party-relationships-0</a>.
\2\ See, e.g., Berhan Bayeh et al., Federal Reserve 2025
Findings from the Diary of Consumer Payment Choice, 5 (2025)
(finding that, in 2024, credit and debit cards were used for
approximately 65 percent of consumer payments).
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Card networks are a crucial means of allowing FCUs to exercise
their statutory authority to offer share accounts and lend. FCUs
contract with card networks (e.g., Visa and Mastercard) and others to
facilitate payment card transactions. When acting as the issuers of
credit and debit cards, they provide payment cards to members, assess
cardholder risk, and offer services including fraud detection and
prevention, dispute resolution, and rewards programs. When acting as
acquirers they contract with merchants who accept payment cards and
connect these merchants to the card network so that transactions are
seamlessly processed and settled.
To compensate FCUs and other card network participants for their
services, the participants are paid fees. These fees, which include
interchange fees, compensate these parties for the costs of their
participation, incentivize their provision of services and continued
participation in the network, and enable enhancements, such as fraud
detection and prevention, rewards programs, and technology upgrades.
Interchange fees are an important aspect of the compensation structure
that an FCU evaluates when deciding whether to participate in a card
network.
An FCU could engage in bilateral negotiations with myriad merchants
and other financial organizations involved in processing payment card
transactions to establish the terms of this activity, including fees.
Given the global nature of payment card systems, however, such a
process would be complex, inefficient, ineffective, and costly.
Moreover, most FCUs do not have the resources to engage in such
activities. Accordingly, most FCUs agree to the interchange fees set by
the card networks.
In its 2024 spring session, the Illinois General Assembly passed
the Illinois Interchange Fee Prohibition Act (IFPA) to ban FCU credit
and debit card issuers and acquirers from receiving from or charging
merchants any interchange fees on the portion of a transaction made up
of state and local taxes and gratuities.\3\ The IFPA defines an
interchange fee as ``a fee established, charged, or received by a
payment card network for the purpose of compensating the issuer for its
involvement in an electronic payment transaction.'' \4\ The enactment
of the IFPA set off a chain of litigation about the scope of a state's
ability to
[[Page 34726]]
regulate national banking entities, including FCUs.
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\3\ 815 ILCS 151/150-1 et seq.
\4\ Essentially, interchange fees are established for
compensation to the issuer (often times, FCU) for its services
related to credit and debit card payment transactions.
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A Federal district court in the Northern District of Illinois
recently held that NCUA rules do not preempt the IFPA regarding FCU
credit and debit card interchange fees.\5\ The court found that Sec.
701.21(b) of NCUA's rules, NCUA's preemption rule related to loans and
lines of credit, does ``not preempt all state laws regulating credit
cards but instead, identifies specific aspects of the relationship
between credit unions and their members that states cannot regulate.''
\6\ The court reasoned that since Sec. 701.21(b) ``refer[s] to state
laws regulating fees charged to credit union members in connection with
an initial line of credit'' and that interchange fees are not directly
tied to loan interest or repayment terms, then NCUA preemption is not
implicated.
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\5\ Ill. Bankers Ass'n v. Raoul, F. Supp. 3d , 2026 WL 371196,
at *16 (N.D. Ill. Feb. 10, 2026).
\6\ Ill. Bankers Ass'n v. Raoul, No. 24-7307, 2025 WL 409060, at
*3 (N.D. Ill. Feb. 6, 2025). See 12 CFR 701.21(b).
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The Federal Credit Union Act (FCU Act) authorizes FCUs to offer
credit and debit cards to members and provides NCUA authority to
regulate FCUs' charging of non-interest charges and fees related to
these products, including interchange fees.\7\ Section 701.21(b) does
not explicitly state NCUA's preemption authority related to such non-
interest charges and fees.\8\ To address this gap, and to ensure Sec.
701.21(b) more accurately states NCUA's exclusive authority to regulate
non-interest charges and fees, NCUA is issuing this interim final rule
(IFR) to consolidate and clarify NCUA's preemption rules. The IFR
clarifies that FCUs have authority under the FCU Act to charge non-
interest charges and fees, including interchange fees, and NCUA has
exclusive authority over FCUs' ability to charge non-interest charges
and fees.
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\7\ See 12 U.S.C. 1757(1) (authorizing FCUs to make contracts);
12 U.S.C. 1757(5) (authorizing lines of credit); 12 U.S.C.
1757(6)(C) (permitting ``share draft accounts authorized under
section 1785(f)''); 12 U.S.C. 1785(f)(1) (``[A credit union] may
permit the owners of such share draft accounts to make withdrawals
by negotiable or transferable instruments or other orders for the
purpose of making transfers to third parties.''); 12 U.S.C. 1757(17)
(authorizing FCUs ``to exercise such incidental powers as shall be
necessary or requisite to enable it to carry on effectively the
business for which it is incorporated'').
\8\ The FCU Act permits FCUs to make the decision to receive
interchange fees set by payment networks, along with decisions about
the payment card services to offer, the card networks with which to
contract, and the terms of the agreements. Therefore, the FCU Act's
preemption of state laws affecting these terms and fees should not
be read to change simply because a third party has a role in setting
the non-interest charges and fees. Additionally, NCUA's intent to
preempt FCUs' non-interest charges and fees is evident in Sec.
701.21(b)(1). Section 701.21(b) sets forth a non-exhaustive list of
areas where state law is specifically preempted. Included in the
list are many income-related items, such as ``rates of interest,''
``late charges,'' ``closing costs, application, origination or other
fees.'' The list of preempted items is distinguishable from the much
narrower list of issues that are not preempted. Non-preempted items
are those traditionally left to the exclusive jurisdiction of
states, including the area of insurance laws, security interests,
collection costs and attorney fees, and curing defaults. Non-
interest charges, whether contracted with third-parties or charged
directly to the member, is closely related to the listed examples of
preempted items in Sec. 701.21(b)(1).
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The Office of the Comptroller of the Currency (OCC) recently issued
a similar IFR to clarify the longstanding powers under federal law for
national banks to charge certain fees, regardless of whether those fees
are set by the bank or a third party.\9\ The OCC simultaneously issued
an interim final order to further confirm that federal law preempts the
IFPA, expressly providing that national banks and federal savings
associations are neither subject to nor required to comply with the
IFPA. Following OCC's IFR, the Federal district court in the Northern
District of Illinois granted a permanent injunction preventing Illinois
from enforcing the IFPA's interchange fee limitation against (1)
national banks; (2) banks chartered by states other than Illinois that
are subject to the Riegle-Neal Interstate Banking and Branching
Efficiency Act; \10\ (3) federal savings associations; and (4) payment
card networks.\11\ NCUA has consulted with OCC staff in issuing this
IFR and is adopting language that is substantially similar to the
language adopted by the OCC.
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\9\ 91 FR 22989 (Apr. 29, 2026).
\10\ 12 U.S.C. 1831a(j)(1).
\11\ Ill. Bankers Ass'n v. Raoul, F. Supp. 3d , 2026 WL 1534350,
at *12 (N.D. Ill. Jun. 1, 2026).
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B. Legal Authority
The FCU Act provides FCUs the power ``to make contracts,'' \12\
``to make loans . . . and extend lines of credit to its members,'' \13\
and ``to exercise such incidental powers as shall be necessary or
requisite to enable it to carry on effectively the business for which
it is incorporated.'' \14\ A credit card constitutes a form of a line
of credit and falls squarely within the scope of FCU lending authority
under the FCU Act and NCUA regulations. Additionally, NCUA has long
maintained a regulation governing the circumstances under which the FCU
Act and NCUA regulations preempt state laws that would otherwise apply
to FCU lending activities.\15\ This provision, codified at 12 CFR
701.21(b), sets forth a list of areas that are specifically preempted
under FCU lending authority.\16\ Included in Sec. 701.21(b) are state
laws affecting rates of interest, amount of finance charge, use of and
limits on variable rate credit, maturity limits and other terms of
repayment, and various other conditions. The list is illustrative only
and is not intended to be exhaustive.\17\
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\12\ 12 U.S.C. 1757(1).
\13\ See 12 U.S.C. 1757(5) (authorizing lines of credit); see
also 12 CFR 701.21(a) (``[T]he Federal Credit Union Act (12 U.S.C.
1757(5)) authoriz[es] Federal credit unions to . . . issue lines of
credit (including credit cards) to members.'').
\14\ 12 U.S.C. 1757(17). As relevant here, an activity is
authorized under an FCU's incidental powers if it is ``convenient or
useful in carrying out the mission or business of credit unions
consistent with the Federal Credit Union Act[.]'' 12 CFR 721.2(a).
\15\ See, e.g., 49 FR 30683 (Aug. 1, 1984).
\16\ 12 CFR 701.21(b).
\17\ 49 FR 30683 (Aug. 1, 1984).
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The FCU Act also provides FCUs authority to receive shares, share
certificates, and share draft accounts \18\ and also provides authority
for FCUs ``to make contracts'' \19\ and ``exercise such incidental
powers as shall be necessary or requisite to enable it to carry on
effectively the business for which it is incorporated.'' \20\ Debit
cards, which permit a member to electronically withdraw funds from a
share account, are permissible under these authorities and have long
been recognized as such by NCUA.\21\ Consistent with the preemption
principles applicable to lending, NCUA has also issued a regulation
governing the applicability of state laws to FCU share, share
certificate, and share draft accounts. This provision, codified in 12
CFR 701.35, states that FCUs may determine the types of fees or charges
and other matters affecting the opening, maintaining and closing of
share, share draft or share certificate accounts and that state laws
purporting to regulate such matters do not apply to FCUs.\22\
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\18\ 12 U.S.C. 1757(6)(C) (permitting ``share draft accounts
authorized under section 1785(f)'').
\19\ 12 U.S.C. 1757(1).
\20\ 12 U.S.C. 1757(17).
\21\ Debit cards are ``convenient and useful'' because they
permit members of FCUs to participate in a marketplace in which the
use of such cards dominates, as are the fees which support those
activities. See 12 CFR 721.3(k) (expressly authorizing ``debit
cards'' as an incidental power); see also 12 U.S.C. 1757(6)(C)
(permitting ``share draft accounts authorized under section
1785(f)''); 12 U.S.C. 1785(f)(1) (``[A credit union] may permit the
owners of such share draft accounts to make withdrawals by
negotiable or transferable instruments or other orders for the
purpose of making transfers to third parties.''); 12 CFR 721.3(d)
(authorizing ``electronic fund transfers'').
\22\ 12 CFR 701.35. See King v. Navy FCU, 148 F.4th 628, 634
(9th Cir. 2025) (holding that under Sec. 701.35 ``all state laws
that regulate account fees--general, specific, or otherwise--have no
application to federal credit unions'').
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Accordingly, FCUs have broad powers to engage in activities that
are part of,
[[Page 34727]]
or incidental to the business for which it is incorporated, including
issuing debit cards and credit cards (payment cards) and processing
payments. Federal courts have also recognized that national banks'
federally authorized power to provide banking services includes the
authority to charge for those services.\23\ This reasoning applies
equally to FCUs, which similarly possess the authority to impose non-
interest charges and fees associated with credit card and debit card
transactions.\24\ FCUs are also explicitly permitted to derive income
from incidental activities.\25\ Additionally, NCUA has previously
recognized that FCUs may solicit members that are retail merchants to
accept merchant card processing services offered through a third party
in exchange for compensation from the third party.\26\
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\23\ Ill. Bankers Ass'n v. Raoul, 760 F. Supp. 3d 636, 655-56
(N.D. Ill. 2024) (citing Monroe Retail, Inc. v. RBS Citizens, N.A.,
589 F.3d 274, 284 (6th Cir. 2009) and City & Cnty. of San Francisco,
309 F.3d 551 (9th. Cir 2002)).
\24\ Even if the receipt of fees related to credit card and
debit card transactions is not considered directly authorized under
the FCU Act, it is clearly authorized under the FCU Act's incidental
powers. The incidental powers granted to FCUs are not identical, but
similar to those granted to national banks. Compare 12 U.S.C.
1757(17) (permitting FCUs ``to exercise such incidental powers as
shall be necessary or requisite to enable it to carry on effectively
the business for which it is incorporated''), with 12 U.S.C. 24
(Seventh) (permitting national banks to exercise ``all such
incidental powers as shall be necessary to carry on the business of
banking'').
\25\ 12 CFR 721.6 (``[Credit unions] may earn income for those
activities determined to be incidental to [their] business.''). See,
OGC Legal Opinion 03-1020 (Jan. 2004), available at <a href="https://ncua.gov/regulation-supervision/legal-opinions/2004/preemption-fee-limitations-debt-cancellation-products">https://ncua.gov/regulation-supervision/legal-opinions/2004/preemption-fee-limitations-debt-cancellation-products</a> (finding that state law
limiting charges related to debt cancellation or suspension
agreements, authorized under NCUA's incidental power rules, are
preempted under Sec. 701.21(b)). See also, OGC Legal Opinion 07-
0743 (Aug. 2007), available at <a href="https://ncua.gov/regulation-supervision/legal-opinions/2007/preemption-georgia-law-regarding-check-cashing-fees">https://ncua.gov/regulation-supervision/legal-opinions/2007/preemption-georgia-law-regarding-check-cashing-fees</a> (finding that FCUs are not subject to a state
statute prohibiting financial institutions from charging fees for
cashing checks for non-account-holders).
\26\ See, OGC Legal Opinion 04-0716 (Feb. 2005), available at
<a href="https://ncua.gov/regulation-supervision/legal-opinions/2005/card-processing-services-members">https://ncua.gov/regulation-supervision/legal-opinions/2005/card-processing-services-members</a> (finding that FCUs may solicit members
that are retail merchants to accept merchant card processing
services offered through a third party in exchange for compensation
from the third party).
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An FCU's decision to contract with a card network and receive
compensation through interchange fees is directly and reasonably
related to its authority to issue payment cards to members.
Accordingly, the FCU Act affords FCUs broad authority to issue credit
and debit cards and to charge non-interest charges and fees associated
with those products.
Finally, NCUA has broad power to issue regulations governing FCUs
and is issuing this IFR pursuant to its general regulatory authority
under the FCU Act. Under the FCU Act, NCUA is the chartering and
supervisory authority for FCUs.\27\ Section 120 of the FCU Act is a
general grant of regulatory authority and authorizes the Board to
prescribe rules and regulations for the administration of the FCU
Act.\28\
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\27\ 12 U.S.C. 1752-1775.
\28\ 12 U.S.C. 1766(a).
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II. Interim Final Rule
Although NCUA believes that its preemption rules already allow FCUs
to impose fees that are set by a third party without state
interference, NCUA is adopting this IFR to clarify that the FCU Act
provides authority for FCUs to charge, whether directly or indirectly,
non-interest charges and fees, including interchange fees, in
connection with offering permissible activities or services and that
state laws regulating such activities are not applicable to FCUs. NCUA
is satisfied that, in stating its position, it is exercising the
rulemaking authority granted by Congress to preempt state laws
regarding share accounts, loans, and lines of credit made by FCUs, and
any incidental powers related to such authorities. 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 Board
believes the IFR resolves any uncertainty about the scope of the FCU
Act, NCUA's preemption rules, and FCUs' obligation to comply with the
IFPA.
To clarify its position, NCUA is adding a new Sec. 701.5 on
preemption to part 701. Section 701.5 consolidates NCUA's preemption
rules in Sec. Sec. 701.21(b) and (g)(6) and 701.35(c) and (d) in one
section and adds a new provision explicitly stating that FCUs may
charge non-interest charges and fees and that state law limiting those
charges are preempted. Each section of Sec. 701.5 is discussed below.
First, Sec. 701.5 includes introductory language to set forth
NCUA's intent concerning preemption of state laws. This language
provides that NCUA applies preemption principles derived from the
United States Constitution, as interpreted through judicial precedent,
when determining whether state laws apply.
Section 701.5(a) governs preemption related to share, share draft,
and share certificate accounts and is identical to NCUA's long-standing
preemption provisions in Sec. 701.35. To reflect that consolidation,
the IFR moves paragraphs (c) and (d) from Sec. 701.35 to Sec.
701.5(a), and removes them from Sec. 701.35.
Section 701.5(b) governs preemption related to loans to members and
lines of credit to members and is substantially identical to Sec.
701.21(b) and (g)(6), related to due-on-sales clauses. The only
amendment to current Sec. 701.21(b) is the removal of the words ``to
members'' in Sec. 701.21(b)(1). The removal of the words ``to
members'' is intended to clarify that the authority to regulate the
rates, terms of repayment and other conditions of FCUs loans and lines
of credit (including credit cards) is not limited to charges directly
to members. As reflected in the new definition of ``charge'' in Sec.
701.5(c)(1), one of the purposes of Sec. 701.5 is to clearly
articulate an FCU's power to receive non-interest charges and fees for
providing products or services, regardless of whether the charge or fee
comes directly from the member receiving the product or service or via
a third party that may not have a ``member'' relationship with the FCU.
To reflect that Sec. 701.21(b) is moved to Sec. 701.5(b), the IFR
reserves Sec. 701.21(b).
Section 701.5(b) also includes existing authority in Sec.
701.21(g)(6) related to due-on-sales clauses. The IFR makes no
amendments to the historic language in Sec. 701.21(g)(6) and has only
moved the provisions to Sec. 701.5(b)(5) to consolidate NCUA's
preemption authority. Current Sec. 701.21(g)(6) is amended to remove
the existing language and replace it with a cross reference to Sec.
701.5(b)(5).
Section 701.5(c) is new language that is substantially similar to
the OCC's section 7.4002 and is intended to state explicitly that FCUs
have authority to charge non-interest charges and fees related to
permissible activities.
Defining ``Charge''
Some of the ambiguity about the scope of NCUA's current preemption
rules appears to be related to whether an FCU's authority regarding
receiving fees for its services must be directly between the FCU and
its member. Accordingly, the IFR is adding a definition of ``charge''
to Sec. 701.5(c)(1) and explicitly stating an FCU's authority to
impose non-interest charges and fees. This definition clarifies that
charge means to assess, collect, impose, levy, receive, reserve, take,
or otherwise obtain, including through a fee sharing or similar
economic relationship. This definition also clarifies that FCUs may
take such actions directly or through intermediaries, partners, payment
networks, interchanges, or other third parties. These amendments are
intended
[[Page 34728]]
to encompass various means by which a FCU may obtain non-interest
charges for providing a product or service, regardless of which entity
sets the amount of the non-interest charge or fee or exactly how the
FCU obtains the charge or fee.
Paragraph (c)(2) states that an FCU may charge non-interest charges
and fees, including share account service charges and interchange fees
from credit and debit card operations. Section 701.5(a) (current Sec.
701.35) also permits FCUs to charge non-interest charges and fees
related to share account service charges, but NCUA is including the
reference in paragraph (c)(2) as well for clarity. The IFR also
explicitly includes interchange fees as a nonexclusive example of the
non-interest charges and fees covered to provide additional clarity.
NCUA continues to emphasize, however, that the inclusion of this
example does not imply the exclusion of others.
Paragraph (c)(3) describes the factors an FCU considers when making
a business decision to establish non-interest charges and fees in
accordance with safe and sound banking principles.\29\ The IFR provides
that each FCU should make business decisions regarding non-interest
charges and fees on a competitive basis and not on the basis of any
agreement, arrangement, undertaking, understanding, or discussion with
other financial institutions or their officers.
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\29\ NCUA construes Sec. 701.5(c)(3) to mean that an FCU that
considers at least these five factors in setting its non-interest
charges and fees has satisfied the requirement that the charges and
fees be set according to safe and sound banking principles and,
therefore, faces no supervisory impediment to exercising the
authority to set charges and fees that the regulation describes.
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This IFR also makes explicit that an FCU's choice regarding
charging non-interest charges and fees, including whether to enter into
business relationships or lines of business or charge fees set by or in
consultation with third parties, are also business decisions to be made
by each FCU, in its discretion, according to sound banking judgment and
safe and sound banking principles. The provisions reflect the reality
of the modern financial system and global economy, where products and
services may be more efficiently and effectively provided through third
parties, which may also make or influence decisions regarding pricing.
The IFR also provides factors for determining whether an FCU
establishes non-interest charges and fees in accordance with safe and
sound banking principles. These factors include, among others:
(A) The cost incurred by the FCU in providing the service;
(B) The deterrence of misuse by members of financial services;
(C) The enhancement of the competitive position of the FCU in
accordance with its business plan and marketing strategy;
(D) The use of third parties to provide or facilitate the provision
of a product or service; and
(E) The maintenance of the safety and soundness of the FCU.
These factors are identical to the factors included in Sec.
7.4002.
The OCC's Sec. 7.4002 provides that charges and fees that are
``interest'' within the meaning of 12 U.S.C. 85 are governed by Sec.
7.4001. NCUA is not adopting a similar provision. NCUA notes that while
12 U.S.C. 1785(g) is similar to 12 U.S.C. 85, it has historically been
interpreted to accord ``most favored lender'' status to a state
chartered federally insured credit union.\30\ Therefore, it is not
relevant to FCU's authority to charge non-interest charges and fees.
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\30\ See NCUA Interpretive Ruling and Policy Statement (IRPS)
81-3. 46 FR 24153 (Apr. 30, 1981), available at <a href="https://ncua.gov/files/publications/irps/IRPS1981-03.pdf">https://ncua.gov/files/publications/irps/IRPS1981-03.pdf</a>.
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The OCC's section 7.4002 also provides that fees related to
fiduciary activities are not covered under Sec. 7.4002. The NCUA notes
that NCUA fiduciary authority is generally limited, but an FCU is
authorized to act as trustee or custodian, and may receive reasonable
compensation for so acting, under certain written trust instrument or
custodial agreement created or organized in the United States and
forming part of a tax-advantaged savings plan.\31\ Given the limited
applicability of NCUA's fiduciary authorities, Sec. 701.5 does not
include a parallel provision as Sec. 7.4002(e), but the NCUA confirms
that FCUs may continue to receive reasonable compensation for acting as
trustee or custodian, as provided under Sec. 724.1.
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\31\ 12 CFR pt. 724.
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III. Regulatory Procedures
A. Administrative Procedure Act
NCUA is issuing this IFR without prior notice and the opportunity
for public comment and the delayed effective date that are ordinarily
prescribed by the Administrative Procedure Act (APA).\32\ Pursuant to
the APA, general notice and the opportunity for public comment are not
required with respect to a rulemaking when an ``agency for good cause
finds (and incorporates the finding and a brief statement of reasons
therefor in the rules issued) that notice and public procedure thereon
are impracticable, unnecessary, or contrary to the public interest.''
\33\
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\32\ 5 U.S.C. 553.
\33\ 5 U.S.C. 553(b)(B).
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NCUA has found that prior notice and public comment are
impracticable for this IFR due to the abbreviated timeline between the
February 2026 district court case and the effective date of the
IFPA.\34\ As the court's analysis in the opinion was based, in part, on
a perceived lack of clarity in Sec. 701.21(b) regarding non-interest
charges and fees charged to third parties, absent this IFR, there
likely will be significant uncertainty as to whether FCUs are required
to comply with the IFPA.
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\34\ 815 Ill. Comp. Stat. 151/150. NCUA notes that immediately
prior to publication in the Federal Register, the Illinois
legislature voted to delay the effective date from July 1, 2026, to
July 1, 2027. At drafting, the delay had not been signed into law,
but the NCUA understands that the delay is likely to be signed. NCUA
believes good cause exists even if the delay becomes effective.
First, the Federal district court in the Northern District of
Illinois has already held the OCC's interim final rule preempts the
IFPA and granted a permanent injunction. NCUA must act immediately
to restore parity between FCUs and national banks. Additionally,
NCUA seeks to avoid unnecessarily prolonging the litigation by
delaying a ruling as to FCUs until a notice of proposed rulemaking
is issued and finalized. The rulemaking process would likely take
several months, during which time FCUs would have substantial
uncertainty regarding compliance with the IFPA and any appeal to the
Seventh Circuit may be remanded back to the district court pending
NCUA action.
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As explained below, the IFPA creates a complex and potentially
unworkable standard, and it imposes significant potential liability for
non-compliance. Therefore, financial institutions, including FCUs, may
take drastic actions to avoid these risks, up to and including
declining payment card transactions subject to the IFPA.\35\ Given the
complexity of the payment card systems and the modern economy, these
effects may not be limited to Illinois.
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\35\ E.g., Letter from H. Carney, Exec. Vice President, Fin.
Inst. Pol'y & Regul. Affs., Am. Bankers Ass'n, to W. Giles,
Principal Deputy Chief Couns., OCC 3 (Mar. 30, 2026) (``ABA
Letter'') (``We are also hearing that some issuing financial
institutions--particularly smaller and mid-sized banks--are
concluding that the IFPA's risks and costs are too great, and have
indicated they may simply cease issuing credit or debit cards to
their customers, while also exploring options for declining card
transactions in Illinois.'')
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For FCUs that choose to continue to support these payment card
transactions, NCUA understands that these card issuers will need to
inform customers, in advance of the IFPA's July 1 effective date, that
the terms and conditions of their payment cards may soon change.\36\
NCUA also understands
[[Page 34729]]
that FCUs will need to inform merchants about possible changes,
including updates to how they process payments, the need for new
software or hardware, or that some transactions may be declined.\37\
These communications, as well as the potential for FCUs to stop
supporting covered payment card transactions, may generate significant
customer and merchant confusion about whether, or how, payment cards
will work after the IFPA's effective date. These potential actions may
cause doubt about continued access to basic lending and deposit
services, which could lead to economic harm and disruption and pose
significant risks to the safety and soundness of FCUs or the nation's
banking system as a whole.
---------------------------------------------------------------------------
\36\ Id.
\37\ Id.
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In light of these potential consequences, NCUA, for good cause,
finds that advance notice and comment is impracticable and is issuing
this IFR. This IFR will provide regulatory clarity that NCUA preemption
rules include non-interest charges and fees and, therefore, that the
IFPA is preempted. The IFR is intended to help prevent the imminent
negative effects of the IFPA's application to FCUs. Given the
importance of this issue, however, NCUA invites public comment on all
aspects of this IFR and intends to issue a final rule as soon as
possible after the close of the comment period and sufficient time to
consider and address comments.
Background
In the modern economy, millions of customers and merchants
worldwide rely on payment cards every day, including an estimated 1.3
million merchants in Illinois.\38\ As discussed above, FCUs serve an
essential function in the U.S. payment card systems.\39\ A significant
disruption of these payment networks could cause substantial economic
harm.
---------------------------------------------------------------------------
\38\ See U.S. Small Bus. Admin., 2024 Small Business Profile:
Illinois (reporting 1.4 million small businesses, representing 99.6%
of all Illinois businesses); Clearly Payments, How Many Businesses
in the US and Canada Accept Credit Cards in 2025 (2025) (estimating
that approximately 94 percent of U.S. merchants accept payment
cards).
\39\ Any payment cardholders could make purchases subject to the
IFPA, such as when traveling to Illinois or shopping online.
---------------------------------------------------------------------------
On June 7, 2024, Illinois enacted the IFPA, which, among other
things, prohibits card issuer banks, card networks, acquirer banks, and
other participants from receiving or charging a merchant an interchange
fee on the tax or gratuity amount of a payment card transaction.\40\
This prohibition, known as the interchange fee prohibition, applies if
the merchant informs the acquirer of the tax or gratuity amount as part
of the authorization or settlement of the transaction (automatic
process).\41\ Alternatively, the merchant has 180 days to transmit the
relevant documentation (e.g., paper receipts) to the acquirer bank,
after which the issuer has 30 days to credit the merchant for any
interchange fee charged on the tax or gratuity amount (manual
process).\42\ Violations of the interchange fee prohibition carry a
civil penalty of $1,000 per transaction.\43\
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\40\ 815 Ill. Comp. Stat. 151/150-10(a). The IFPA defines an
interchange fee as ``a fee established, charged, or received by a
payment card network for the purpose of compensating the issuer for
its involvement in an electronic payment transaction.'' Id. at 151/
150-5.
\41\ Id. at 151/150-10(a).
\42\ Id. at 151/150-10(b).
\43\ Id. at 151/150-15(a).
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In August 2024, the Illinois Credit Union League, Illinois Bankers
Association, America's Credit Unions, and American Bankers Association
(collectively, IBA) sought to enjoin the IFPA.\44\ In February 2026,
the district court found that the interchange fee prohibition was not
preempted by federal law.\45\
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\44\ Compl. for Decl. & Inj. Relief, Ill. Bankers Ass'n v.
Raoul, No. 24-cv-07307 (N.D. Ill. Aug. 15, 2024); Pl.'s Mot. for
Prelim. Inj., Ill. Bankers Ass'n v. Raoul, No. 24-cv-07307 (N.D.
Ill. Aug. 21, 2024).
\45\ Ill. Bankers Ass'n v. Raoul, ____F. Supp. 3d , 2026 WL
371196, at *16 (N.D. Ill. Feb. 10, 2026). On June 1, 2026, following
OCC's interim final rule, the court granted a permanent injunction
against the IFPA for national banks. Ill. Bankers Ass'n v.
Raoul,____ F. Supp. 3d ____, 2026 WL 1534350, at *12 (N.D. Ill. Jun.
1, 2026).
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IFPA's Application to FCUs
NCUA understands that current payment card infrastructure does not
support the IFPA's automatic process and cannot be updated by the
IFPA's effective date.\46\ To implement this process would appear to
require, at a minimum: (1) the card networks to develop new
technological and standards changes in coordination with relevant U.S.
and international standards bodies; (2) acquirer and issuer FCUs to
implement these changes; and (3) merchants to develop and adopt systems
to transmit the requisite information at the point of sale.\47\ Such
changes likely would entail lengthy and careful planning because
implementation glitches or failures could disrupt global payment card
systems or create opportunities for fraud or misuse.\48\
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\46\ See id. at *6 (``It is an open question whether the
transaction process could adapt to the impact of the IFPA in
time.''); see also ABA Letter, supra, at 3.
\47\ Declaration of Chiro Aikat ]] 33-40, Ill. Bankers Ass'n v.
Raoul, No. 24-cv-07307 (N.D. Ill. Aug. 21, 2024) (Decl. C. Aikat);
Declaration of Dierdre P. Cohen ]] 6-7, 20-26, Ill. Bankers Ass'n v.
Raoul, No. 24-cv-07307 (N.D. Ill. Aug. 21, 2024) (``Decl. D.
Cohen'').
\48\ Decl. D. Cohen, supra, ] 26.
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As an alternative, certain merchants may invoke IFPA's manual
process by submitting tax documentation. It is unclear, however, how
this process could be implemented. Acquirer FCUs may not be able to
identify the issuer in a given transaction.\49\ Even if identification
were possible, there is generally no mechanism for direct communication
between these institutions.\50\ Furthermore, based on the broad
definition of tax documentation, which includes ``invoices, receipts,
journals, ledgers, and tax returns,'' an issuer institution may not be
able to reliably identify the tax and gratuity amount for each
transaction or calculate the corresponding interchange fee credit.\51\
Even if each of these hurdles could be overcome, building new systems
and hiring staff to facilitate this highly manual process would require
time to develop and test.\52\
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\49\ See Decl. C. Aikat, supra, ] 43 (``The statute's text seems
to contemplate that the information that a merchant possesses, such
as what it can identify from receipt or ledger, specifying the
amount of tax and gratuity, will be sufficient for the acquiring
bank to determine which issuing bank was involved in the
transaction. In nearly all circumstances, however, that will not be
true. This is because modern payment card transaction receipts
include only a truncated payment card number, specifically the last
four digits of the 16-digit payment card number, to minimize the
risk of payment card number theft (and as specifically permitted by
applicable banking law). But the issuer of a payment card is not
identifiable from the last four digits. Rather, it is the first six
digits of a payment card number that identify the issuing bank.'').
\50\ See Declaration of Raju Sitaula ] 20, Ill. Bankers Ass'n v.
Raoul, No. 24-cv-07307 (N.D. Ill. Aug. 21, 2024) (``Decl. R.
Sitaula'').
\51\ 815 ILCS 151/150-5.
\52\ Decl. R. Sitaula, supra, ] 26.
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Despite the complex and potentially unworkable nature of the
interchange fee prohibition, the IFPA exposes FCUs to penalties of
$1,000 per transaction for failing to comply with its provisions.\53\
Given the upwards of 6.5 billion payment card transactions that occur
yearly in Illinois, participants in the payment card could be subject
to as much as $6.5 trillion in liability per year for non-compliance
with IFPA.\54\ The
[[Page 34730]]
potential liability could pose significant risk to an FCUs' safety and
soundness as well as the nation's banking system.
---------------------------------------------------------------------------
\53\ 815 ILCS 151/150-15(a).
\54\ See Federal Reserve, Federal Reserve Payments Study, 2024
Accessible Version of Trends in Noncash Payments (March 6, 2025);
U.S. Bureau of Economic Analysis (BEA), SQGDP1 State Quarterly Gross
Domestic Product Summary (accessed Thursday, April 9, 2026). The
number of payment card transactions in Illinois was estimated by
aggregating the estimated number of 2022 card transactions in the
United States as reported in the Federal Reserve Payment Study's
2024 Accessible Version of Trends in Noncash Payments and
multiplying by 3.9 percent, which is Illinois's share of the current
United States dollar Gross Domestic Product in 2025 according to the
BEA. Note that each party in a single transaction seemingly could be
subject to the $1,000 fine, so the total fines attributable to one
transaction could be more than $1,000.
---------------------------------------------------------------------------
In light of the above, the card networks and FCUs may seek to
mitigate their liability, for example, by advising merchants in
Illinois to not accept payment cards for tax and gratuity, attempting
to decline certain classes of transactions (e.g., purchases of
gasoline, where excise tax is imbedded in the product's price),\55\ or
denying payment card transactions originating in Illinois or
elsewhere.\56\ Some smaller FCUs may even be forced to stop offering
payment cards altogether.\57\ Some have stated that compliance with the
IFPA could lead to ``potentially business-ending consequences'' for
some participants.\58\
---------------------------------------------------------------------------
\55\ Since the excise tax is included in the price of gas in
Illinois and varies by grade of fuel, it may be impossible for
merchants to transmit only the cost of the fuel and not the excise
tax.
\56\ See ABA Letter, supra. Currently, the data provided to the
payment card network as a part of an electronic transaction includes
the physical location of the merchant. However, that data may
reflect the merchant's headquarters or other location and not the
location where the transaction occurred. Further, for online
purchases, determining where the purchase took place is even
trickier and that information is also not currently conveyed through
the payment card networks. Decl. D. Cohen, supra, ] 25. As a result,
blocking every transaction subject to the IFPA, and only those
transactions, may be technically difficult to achieve. Such efforts
may result in transactions that are not subject to IFPA being
blocked, e.g., a transaction that occurs in Indiana, but where a
merchant's payment card terminal reflects its headquarters location
in Illinois.
\57\ Declaration of Rick Francois ] 15, Ill. Bankers Ass'n v.
Raoul, No. 24-cv-07307 (N.D. Ill. Aug. 21, 2024) (``[The] manual
reimbursement solution as currently proposed under the legislation
creates an unsustainable burden on debit card issuers of our size.
If the debit card product becomes unprofitable for banks of our
size, they will be forced to consider no longer offering these cards
to their consumers. Not offering the debit card product would be
harmful not only to banks of our size, but to our consumer
clients.'').
\58\ Ill. Bankers Ass'n v. Raoul, ____F. Supp. 3d ____, 2026 WL
371196, at *6 (N.D. Ill. Feb. 10, 2026).
---------------------------------------------------------------------------
NCUA understands that FCUs will need to communicate with members
and other stakeholders about the effects of the IFPA, including
potential changes to the functionality of payment cards.\59\ As noted
above, these communications may generate significant confusion and
doubt about access to basic lending and deposit services, especially
when combined with potential widespread and unpredictable declines of
payment card transactions. This could lead to economic harm and
disruption and pose significant risks to the safety and soundness of
FCUs and the nation's banking system as a whole.
---------------------------------------------------------------------------
\59\ ABA Letter, supra, at 3.
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To avoid these potentially grave consequences, NCUA is acting by
IFR. For the same reasons, the Board is not providing the usual 60-day
comment period before issuing this IFR.\60\
---------------------------------------------------------------------------
\60\ See NCUA Interpretive Ruling and Policy Statement (IRPS)
87-2, as amended by IRPS 03-2 and IRPS 15-1. 80 FR 57512 (Sept. 24,
2015), available at <a href="https://www.ncua.gov/files/publications/irps/IRPS1987-2.pdf">https://www.ncua.gov/files/publications/irps/IRPS1987-2.pdf</a>.
---------------------------------------------------------------------------
The APA also requires a 30-day delayed effective date, except for
(1) substantive rules which grant or recognize an exemption or relieve
a restriction; (2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good cause.\61\ The NCUA
finds there is good cause to issue the IFR without a 30-day delayed
effective date for the same reasons set forth above regarding advance
notice and opportunity for comment.
---------------------------------------------------------------------------
\61\ 5 U.S.C. 553(d).
---------------------------------------------------------------------------
B. Executive Orders 12866, 13563, and 14192
Pursuant to Executive Order 12866 (``Regulatory Planning and
Review''), as amended by Executive Order 14215, a determination must be
made whether a regulatory action is significant and therefore subject
to review by the Office of Information and Regulatory Affairs (OIRA),
within the Office of Management and Budget (OMB) in accordance with the
requirements of the Executive Order.\62\ Executive Order 13563
(``Improving Regulation and Regulatory Review'') supplements and
reaffirms the principles, structures, and definitions governing
contemporary regulatory review established in Executive Order
12866.\63\ This IFR was drafted and reviewed in accordance with
Executive Order 12866 and Executive Order 13563. OIRA has determined
that this IFR is an economically significant regulatory action as
defined under section 3(f)(1) of Executive Order 12866.
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\62\ 58 FR 51735 (Oct. 4, 1993).
\63\ 76 FR 3821 (Jan. 21, 2011).
---------------------------------------------------------------------------
As discussed above, the IFPA would impose substantial costs on
FCUs. This IFR clarifies the scope of FCUs' power to charge non-
interest charges and fees. The IFPA, however, prevents or significantly
interferes with this power. Therefore, this IFR, the effect of which is
to preempt the IFPA, will result in significant cost savings.
Executive Order 14192 (``Unleashing Prosperity Through
Deregulation'') requires that any new incremental costs associated with
new regulations shall, to the extent permitted by law, be offset by the
elimination of existing costs associated with at least 10 prior
regulations.\64\ This IFR is expected to be a deregulatory action under
Executive Order 14192, because it may provide legal clarity for
affected FCUs.
---------------------------------------------------------------------------
\64\ 90 FR 9065 (Feb. 6, 2025).
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C. Regulatory Flexibility Act
The Regulatory Flexibility Act \65\ generally requires an agency to
conduct a regulatory flexibility analysis of any rule subject to notice
and comment rulemaking requirements, unless the agency certifies that
the rule will not have a significant economic impact on a substantial
number of small entities. If the agency makes such a certification, it
shall publish the certification at the time of publication of either
the proposed rule or the final rule, along with a statement providing
the factual basis for such certification.\66\ For purposes of this
analysis, NCUA considers small credit unions to be those having under
$100 million in assets.\67\
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\65\ 5 U.S.C.601 et seq.
\66\ 5 U.S.C. 605(b).
\67\ 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------
As discussed previously, consistent with the APA, NCUA has
determined for good cause that general notice and opportunity for
public comment is unnecessary, and thus, NCUA is not issuing a notice
of proposed rulemaking.\68\ Rules that are exempt from notice and
comment procedures are also exempt from the Regulatory Flexibility Act
requirements, including conducting a regulatory flexibility analysis,
when among other things the agency for good cause finds that notice and
public procedure are impracticable, unnecessary, or contrary to the
public interest. Accordingly, NCUA has concluded that the Regulatory
Flexibility Act's requirements relating to initial and final regulatory
flexibility analysis do not apply.
---------------------------------------------------------------------------
\68\ 5 U.S.C. 553.
---------------------------------------------------------------------------
However, the NCUA evaluated whether the IFR will have a significant
economic impact on a substantial number of small entities. At year-end
2025, there were 2,514 small federally insured credit unions. Of these,
1,723 are FCUs (directly supervised and insured) or 68.5 percent. Of
these, 46.7 percent had nonzero credit card balances at year-end 2025
and roughly 90 percent offered ATM cards.
However, the IFR imposes no new mandates, and thus no direct costs,
on affected FCUs. Therefore, the NCUA
[[Page 34731]]
believes that the IFR will not have a significant economic impact on a
substantial number of small entities.
D. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) generally provides that
an agency may not conduct or sponsor, and not withstanding any other
provision of law, a person is not required to respond to, a collection
of information, unless it displays a currently valid OMB control
number. The PRA applies to rulemaking in which an agency creates a new
or amends existing information collection requirements. For purposes of
the PRA, an information collection requirement may take the form of a
reporting, recordkeeping, or a third-party disclosure requirement. The
NCUA has reviewed this IFR and determined that it does not create any
new or revise any existing collections of information. Accordingly, no
PRA submissions to OMB will be made with respect to this IFR.
E. Executive Order 13132 on Federalism
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests.\69\
NCUA, an agency as defined in 44 U.S.C. 3502(5), voluntarily complies
with the executive order to adhere to fundamental federalism
principles. This IFR preempts state laws and therefore constitutes a
policy that has a federalism implication. In formulating and
implementing this IFR NCUA was guided by the fundamental federalism
principles and special requirements for preemption included in
Executive Order 13132. Specifically, Executive Order 13132 provides
agencies shall construe, in regulations and otherwise, a federal
statute to preempt state law only where the statute contains an express
preemption provision or there is some other clear evidence that the
Congress intended preemption of State law, or where the exercise of
State authority conflicts with the exercise of Federal authority under
the Federal statute. NCUA is satisfied that, in stating its position on
preemption of state law in this IFR, it is exercising the specific and
general rulemaking authority granted by Congress to preempt state laws
regarding the share accounts, loans and lines of credit made by FCUs,
and any incidental powers related to such authorities.
---------------------------------------------------------------------------
\69\ 64 FR 43255 (Aug. 4, 1999).
---------------------------------------------------------------------------
NCUA believes that this IFR preempts state law only as necessary to
achieve the objectives of the FCU Act and to ensure FCUs are permitted
to charge non-interest charges and fees for permissible restriction
without regard to state restrictions. Executive Order 13132 also
requires that when an agency acts through rulemaking to preempt state
law, as is occurring here, the agency shall provide all affected state
and local officials notice and an opportunity for appropriate
participation. Due to timing considerations as discussed above, it was
not practicable to consult with state authorities.
F. Assessment of Federal Regulations and Policies on Families
NCUA has determined that this IFR will not affect family well-being
within the meaning of Section 654 of the Treasury and General
Government Appropriations Act, 1999.\70\ The IFR clarifies that FCUs'
power to charge non-interest charges and fees includes the power to
assess, collect, impose, levy, receive, reserve, take, or otherwise
obtain non-interest charges and fees, including interchange fees from
credit and debit card operations. The IFR does not directly affect
family well-being and any effect on family well-being, including
financial well-being, is expected to be indirect, at most.
---------------------------------------------------------------------------
\70\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------
G. Congressional Review Act
Subtitle E of the Small Business Regulatory Enforcement Fairness
Act of 1996 (also known as the Congressional Review Act or CRA)
generally provides for congressional review of agency rules.\71\ NCUA
must submit a report to Congress and the Comptroller General when it
issues a final rule, as defined by the CRA.\72\ An agency rule, in
addition to being subject to congressional oversight, may also be
subject to a delayed effective date if the rule is a ``major rule.''
The Office of Information and Regulatory Affairs has determined that
this IFR is a major rule as defined by the CRA.\73\ For the same
reasons noted above, however, NCUA is adopting the IFR without the
delayed effective date generally prescribed under the CRA. The delayed
effective date required by the CRA does not apply to any rule for which
an agency for good cause finds (and incorporates the finding and a
brief statement of reasons therefor in the rule issued) that notice and
public procedure thereon are impracticable, unnecessary, or contrary to
the public interest.\74\ In light of current market uncertainty, NCUA
believes that delaying the effective date of the rule would be contrary
to the public interest for the same reasons discussed above. NCUA will
file appropriate reports with Congress and the Comptroller General so
this rule may be reviewed.
---------------------------------------------------------------------------
\71\ 5 U.S.C. 801-808.
\72\ 5 U.S.C. 804(3).
\73\ 5 U.S.C. 804(2).
\74\ 5 U.S.C. 808.
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H. Providing Accountability Through Transparency Act of 2023
The Providing Accountability Through Transparency Act of 2023 (5
U.S.C. 553(b)(4)) requires that a notice of proposed rulemaking include
the internet address of a summary of not more than 100 words in length
of a proposed rule, in plain language, that shall be posted on the
internet website under section 206(d) of the E-Government Act of 2002
(commonly known as <a href="http://regulations.gov">regulations.gov</a>). (44 U.S.C. 3501 note). While NCUA
is not issuing a notice of proposed rulemaking, a summary of this IFR
can be found below:
NCUA is adopting an IFR to clarify that FCUs' power to charge non-
interest charges and fees includes the power to assess, collect,
impose, levy, receive, reserve, take, or otherwise obtain non-interest
charges and fees, including interchange fees from credit and debit card
operations. Further, the IFR explains that FCUs may charge non-interest
charges or fees, even when such charges and fees are set by or in
consultation with third parties.
The IFR and the summary can be found at <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
List of Subjects in 12 CFR Part 701
Advertising, Aged, Civil rights, Credit, Credit unions, Fair
housing, Individuals with disabilities, Insurance, Marital status
discrimination, Mortgages, Religious discrimination, Reporting and
recordkeeping requirements, Sex discrimination, Signs and symbols,
Surety bonds.
By the National Credit Union Administration Board.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons set forth in the preamble, the NCUA Board amends 12
CFR part 701 as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
0
1. The authority citation for part 701 is revised to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759,
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789.
Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31
is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and
3601-
[[Page 34732]]
3610. Section 701.35 is also authorized by 12 U.S.C. 4311-4312.
0
2. Add Sec. 701.5 to read as follows:
Sec. 701.5 Preemption.
This section states the NCUA Board's intent concerning preemption
of state laws. The NCUA applies preemption principles derived from the
United States Constitution, as interpreted through judicial precedent,
when determining whether state laws apply.
(a) Share, share draft or share certificate accounts. A Federal
credit union may, consistent with this section, parts 707 and 740 of
this subchapter, other Federal law, and its contractual obligations,
determine the types of fees or charges and other matters affecting the
opening, maintaining and closing of a share, share draft or share
certificate account. State laws regulating such activities are not
applicable to Federal credit unions.
(b) Loans to members and lines of credit to members--(1) Preemption
of state laws. This paragraph (b) is promulgated pursuant to the NCUA
Board's exclusive authority as set forth in section 107(5) of the
Federal Credit Union Act (12 U.S.C 1757(5)) to regulate the rates,
terms of repayment and other conditions of Federal credit union loans
and lines of credit (including credit cards). This exercise of the
Board's authority preempts any state law purporting to limit or affect:
(i)(A) Rates of interest and amounts of finance charges, including:
(1) The frequency or the increments by which a variable interest
rate may be changed;
(2) The index to which a variable interest rate may be tied;
(3) The manner or timing of notifying the borrower of a change in
interest rate;
(4) The authority to increase the interest rate on an existing
balance;
(B) Late charges; and
(C) Closing costs, application, origination, or other fees;
(ii) Terms of repayment, including:
(A) The maturity of loans and lines of credit;
(B) The amount, uniformity, and frequency of payments, including
the accrual of unpaid interest if payments are insufficient to pay all
interest due;
(C) Balloon payments; and
(D) Prepayment limits; and
(iii) Conditions related to:
(A) The amount of the loan or line of credit;
(B) The purpose of the loan or line of credit;
(C) The type or amount of security and the relation of the value of
the security to the amount of the loan or line of credit;
(D) Eligible borrowers; and
(E) The imposition and enforcement of liens on the shares of
borrowers and accommodation parties.
(2) Matters not preempted. Except as provided by paragraph (b)(1)
of this section, it is not the Board's intent to preempt state laws
that do not affect rates, terms of repayment and other conditions
described above concerning loans and lines of credit, for example:
(i) Insurance laws;
(ii) Laws related to transfer of and security interests in real and
personal property (see, however, paragraph (b)(5) of this section)
concerning the use and exercise of due-on-sale clauses); and
(iii) Conditions related to:
(A) Collection costs and attorneys' fees;
(B) Requirements that consumer lending documents be in ``plain
language;'' and
(C) The circumstances in which a borrower may be declared in
default and may cure default.
(3) Other Federal law. Except as provided by paragraph (b)(1) of
this section, it is not the Board's intent to preempt state laws
affecting aspects of credit transactions that are primarily regulated
by Federal law other than the Federal Credit Union Act, for example,
state laws concerning credit cost disclosure requirements, credit
discrimination, credit reporting practices, unfair credit practices,
and debt collection practices. Applicability of state law in these
instances should be determined pursuant to the preemption standards of
the relevant Federal law and regulations.
(4) Examination and enforcement. Except as otherwise agreed by the
NCUA Board, the Board retains exclusive examination and administrative
enforcement jurisdiction over Federal credit unions. Violations of
Federal or applicable state laws related to the lending activities of a
Federal credit union should be referred to the appropriate NCUA
regional office.
(5) Due-on-sale clauses. (i) Except as otherwise provided herein,
the exercise of a due-on-sale clause by a Federal credit union is
governed exclusively by section 341 of Public Law 97-320 and by any
regulations issued by the Federal Home Loan Bank Board implementing
section 341.
(ii) In the case of a contract involving a long-term (greater than
fifteen years), fixed rate first mortgage loan which was made or
assumed, including a transfer of the liened property subject to the
loan, during the period beginning on the date a State adopted a
constitutional provision or statute prohibiting the exercise of due-on-
sale clauses, or the date on which the highest court of such state has
rendered a decision (or if the highest court has not so decided, the
date on which the next highest court has rendered a decision resulting
in a final judgment if such decision applies statewide) prohibiting
such exercise, and ending on October 15, 1982, a Federal credit union
may exercise a due-on-sale clause in the case of a transfer which
occurs on or after November 18, 1982, unless exercise of the due-on-
sale clause would be based on any of the following:
(A) The creation of a lien or other encumbrance subordinate to the
lender's security instrument which does not relate to a transfer of
rights of occupancy in the property;
(B) The creation of a purchase money security interest for
household appliances;
(C) A transfer by devise, descent, or operation of law on the death
of a joint tenant or tenant by the entirety;
(D) The granting of a leasehold interest of 3 years or less not
containing an option to purchase;
(E) A transfer to a relative resulting from the death of a
borrower;
(F) A transfer where the spouse or children of the borrower become
an owner of the property;
(G) A transfer resulting from a decree of a dissolution of
marriage, a legal separation agreement, or from an incidental property
settlement agreement, by which the spouse of the borrower becomes an
owner of the property;
(H) A transfer into an inter vivos trust in which the borrower is
and remains a beneficiary and which does not relate to a transfer of
rights of occupancy in the property; or
(I) Any other transfer or disposition described in regulations
promulgated by the Federal Home Loan Bank Board.
(c) Non-interest charges and fees--(1) Definition. For the purposes
of this paragraph (c), charge means to directly or indirectly, through
intermediaries, partners, payment networks, interchanges, or other
third parties, assess, collect, impose, levy, receive, reserve, take,
or otherwise obtain, including through a fee sharing or similar
economic relationship.
(2) Authority to impose charges and fees. An FCU may charge non-
interest charges and fees, including share account service charges and
interchange fees from credit and debit card operations.
(3) Considerations. (i) Business decisions regarding non-interest
charges and fees permitted under this paragraph should be arrived at by
each Federal credit union on a competitive basis and
[[Page 34733]]
not on the basis of any agreement, arrangement, undertaking,
understanding, or discussion with other financial institutions or their
officers.
(ii) Decisions regarding charging non-interest charges and fees,
including their amounts, the method of calculating them, whether to
enter into business relationships or lines of business, and whether
they are set by or in consultation with third parties, are business
decisions to be made by each Federal credit union, in its discretion,
according to sound banking judgment and safe and sound banking
principles. A Federal credit union establishes non-interest charges and
fees in accordance with safe and sound banking principles if it employs
a decision-making process through which it considers the following
factors, among others:
(A) The cost incurred by the Federal credit union in providing the
service;
(B) The deterrence of misuse by members of financial services;
(C) The enhancement of the competitive position of the Federal
credit union in accordance with its business plan and marketing
strategy;
(D) The use of third parties to provide or facilitate the provision
of a product or service; and
(E) The maintenance of the safety and soundness of the Federal
credit union.
(d) State law. For purposes of this section, state law means the
constitution, statutes, regulations, and judicial decisions of any
state, the District of Columbia, the several territories and
possessions of the United States, and the Commonwealth of Puerto Rico.
0
3. Amend Sec. 701.21 by:
0
a. Removing and reserving paragraph (b); and
0
b. Revising paragraph (g)(6).
The revision reads as follows:
Sec. 701.21 Loans to members and lines of credit to members.
* * * * *
(g) * * *
(6) Due-on-sale clauses. See Sec. 701.5(b)(5).
* * * * *
Sec. 701.35 [Amended]
0
4. Amend Sec. 701.35 by removing paragraphs (c) and (d).
[FR Doc. 2026-11559 Filed 6-8-26; 8:45 am]
BILLING CODE 7535-01-P
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</html>Indexed from Federal Register on June 9, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.