Bank Associations Back OCC Preemption of State Interchange Law

National and state banking associations supported (i) an OCC interim final rule ("IFR") clarifying that national banks may charge credit and debit card interchange fees, and (ii) an OCC interim final order ("IFO") clarifying that the Illinois Interchange Fee Prohibition Act ("IIFPA") is preempted as to national banks.

In a comment letter, the American Bankers Association and 52 state and territorial bank associations ("associations") backed the two OCC actions, warning that measures such as the IIFPA in more than two dozen states threaten a uniform payments system. The associations argued that the National Bank Act authorized national banks to collect a broad range of non-interest charges and fees, including interchange fees that fund payment card network security and modernization. They said the OCC actions give national banks regulatory certainty to Illinois-chartered and out-of-state banks.

Further, the associations explained that state interchange restrictions were unworkable. They argued that payment card networks cannot separate taxes and gratuities from a transaction in real time or apply different standards state-by-state. They offered the example of a $5 cup of coffee carrying about $0.25 in taxes and a $1 tip: under the IFPA, a bank and network could face a $1,000 fine for collecting less than $0.03 in interchange the state deems unlawful. 

The Associations pointed to the ongoing federal IFPA litigation, Illinois Bankers Ass'n v. Raoul, in which the ABA and the Illinois Bankers Association ("IBA") are co-plaintiffs, and commended the OCC for defending the national banking system against state overreach. (See also, previous coverage.)