The growing battle over interchange fees is quickly becoming one of the credit union industry's most significant policy fights, with the Defense Credit Union Council (DCUC) warning that state-level proposals in Pennsylvania and New York could fundamentally disrupt the nation's payment systems and create ripple effects for consumers, smaller financial institutions and military families.
In letters sent to lawmakers in both states, DCUC urged opposition to interchange-fee proposals modeled after Illinois' controversial Interchange Fee Prohibition Act, arguing the bills extend far beyond simple fee reforms.
"These bills are often described as narrow fee-relief measures, but their actual effect is broader," wrote DCUC Chief Advocacy Officer Jason Stverak in the Pennsylvania filing. "They would impose Pennsylvania-specific operating rules on a national payments system."
The proposals would prohibit interchange fees on sales tax and gratuity portions of card transactions while creating new requirements involving settlement systems, merchant documentation, dispute handling, reconciliation, data governance and refund processing.
DCUC argued that if multiple states adopt varying interchange rules, national payment rails could fracture into a patchwork of compliance mandates requiring costly system overhauls by issuers, networks, processors and merchants.
The organization pointed repeatedly to an April 2026 Office of the Comptroller of the Currency determination involving Illinois' interchange law, in which regulators warned state carveouts could create a "complex, potentially unworkable, and destabilizing standard" for the payments system.
The OCC estimated banks could face more than $232 million in one-time technology costs, roughly $145 million annually in documentation-processing expenses and approximately $200 million in lost issuer revenue absent federal preemption.
For credit unions, the stakes extend beyond card-processing revenue. DCUC warned interchange income helps fund fraud prevention tools, rewards programs, digital banking infrastructure and affordable credit products. Because credit unions operate as not-for-profit cooperatives, the group said new costs would likely surface quickly in member pricing, reduced rewards or tighter credit availability.
DCUC also framed the issue as a military readiness concern, citing federal surveys showing growing financial stress among military families. The organization argued policies that weaken community-based credit unions serving servicemembers could ultimately affect retention, resilience and financial stability for military households.
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