Interchange policy is quickly becoming one of the most important legislative battles unfolding at the state level for credit unions.
Across the country, lawmakers in states like Illinois, New York, Pennsylvania, and Colorado are considering proposals aimed at restricting or prohibiting interchange fees on portions of card transactions. Supporters often frame these bills as simple measures to reduce merchant costs or lower prices for consumers. But the reality is far more complicated, and the stakes for credit unions, their members, and the broader financial ecosystem are significant.
The argument often centers around reducing fees merchants pay when consumers use debit or credit cards, but the payment system itself is not localized or state-specific. It is a deeply interconnected national infrastructure that relies on standardized processes for authorization, settlement, fraud prevention, dispute management, and compliance.
When one state attempts to impose its own rules on that system, the effects ripple far beyond its borders.
That is one of the primary concerns surrounding legislation being debated in states like New York and Pennsylvania. These proposals would require payment networks, issuers, processors, and merchants to make substantial operational changes, from how taxes and gratuities are identified during transactions to how refunds, documentation, and settlement workflows are handled.
Those are not minor administrative adjustments. They are structural changes to the “plumbing” of the payments system; for credit unions, notably smaller-scale institutions, the cost of adapting to those changes could be substantial.
Unlike large national banks driven by shareholder returns, credit unions operate as not-for-profit cooperatives focused on serving members. Card program revenue often reinforces funding for stronger fraud monitoring tools, digital banking investments, member rewards programs, cybersecurity protections, and affordable lending products.
When interchange revenue is reduced or operational costs increase, credit unions do not simply absorb the impact indefinitely. The effects often show up elsewhere, through reduced rewards, tighter credit availability, increased account fees, or scaled-back services.
Research surrounding previous interchange regulation reinforces that concern. Following implementation of the federal Durbin Amendment, the Federal Reserve Bank of Richmond found that 75% of merchants reported no price reductions for consumers. Only a small percentage lowered prices at all.
Cost-shifts become more concerning for defense credit unions serving military and veteran members, and their families.
Military households often face unique financial pressures, including frequent relocations, disrupted spousal employment, deployment-related stress, and unexpected out-of-pocket expenses. Access to affordable financial services, responsive member support, fraud protections, and reliable credit options can make an enormous difference during periods of instability.
Policies that weaken the operational capacity of credit unions serving those communities could have broader consequences than lawmakers initially anticipate.
This debate also raises a larger concern for the credit union movement as a whole: fragmentation of the national payments system.
The Office of the Comptroller of the Currency (OCC) recently warned that multiple state-level interchange carveouts could create what it described as a “complex, potentially unworkable, and destabilizing standard” for payment systems nationwide. The OCC estimated that compliance with Illinois’ law alone could require hundreds of millions of dollars in system upgrades, ongoing documentation processing, and lost issuer revenue if similar laws proliferate across states.
That patchwork approach creates uncertainty not only for financial institutions, but for merchants, consumers, processors, and regulators.
And the legal battles are already intensifying.
Litigation surrounding Illinois’ Interchange Fee Prohibition Act continues, while new federal regulatory actions appear to strengthen arguments that federal law may preempt state-level interchange restrictions. Meanwhile, lawmakers in New York continue debating similar legislation amid growing concerns about implementation challenges, cybersecurity implications, litigation exposure, and operational disruption.
For credit unions, this moment underscores the importance of sustained advocacy and engagement.
Interchange policy may not generate headlines in the same way as interest rates or major economic legislation, but it directly affects the financial tools and services members rely on every day. These debates also reflect a broader tension playing out nationally: how to balance merchant concerns, consumer protection, innovation, competition, and financial access without destabilizing the systems that support them.
Right now, vigilance and sustained advocacy matters.
State interchange legislation is no longer an isolated issue. It is becoming a defining policy challenge with implications for the future of community finance, military financial readiness, and the cooperative credit union model itself.
As more states explore similar proposals, the industry’s response will likely shape not only the future of interchange policy, but also the broader conversation about how credit unions continue delivering value in an increasingly complex financial landscape.
