OCC announces actions preempting Illinois interchange law

The OCC issued an interim final rule and interim final order clarifying longstanding powers under federal law for national banks to charge certain fees, preempting a pending Illinois law that restricts interchange fees.

Background: Scheduled to take effect on July 1, the Illinois Interchange Fee Prohibition Act would prohibit the application of interchange fees on the tax and tip portion of a transaction.

OCC Interim Final Rule: Effective June 30, the OCC’s interim final rule clarifies national banks’ power to charge non-interest fees and charges, including interchange fees from payment card activity, regardless of whether those fees are set by the bank or a third party.

OCC Interim Final Order: The agency’s interim final order confirms that federal law preempts the Illinois law, expressly providing that national banks and federal savings associations are neither subject to nor required to comply with the state law.

Impact: The OCC said the Illinois law would create a complex, potentially unworkable, and destabilizing standard for national banks, federal savings associations, and the nation’s payment card systems. The agency said its actions will help prevent the imminent negative effects of the state law’s application to OCC-regulated banks.

Comment Deadline: Comments on the interim final rule and interim final order are due 30 days after publication in the Federal Register. ICBA is reviewing both issuances and plans to submit comments.