Interchange fees, fraud top state political issues facing community bankers

Legislatures will tackle several issues impacting community bankers this year in states across the Midwest. Though legislation is possible on cryptocurrencies/stablecoins and fraud prevention, state banking trade groups frequently list the potential for interchange fee legislation as their top focus in 2026..Interchange feesPassed in June 2024, the Illinois Interchange Fee Prohibition Act was the first of its kind in the country and banned banks from charging interchange fees on the tax and tip portions of debit/credit card transactions. The legislation, which faces legal challenges alleging it violates federal banking laws, was set to take effect last year. However, its effective date has been pushed back to the middle of this year to give time for a court ruling. A partial injunction against the law already applies to federally chartered banks and out-of-state chartered banks.Overturning the law is the top priority of the Community Bankers Association of Illinois this year, said Senior Vice President of Government Relations Jerry Peck. The judge overseeing the case could throw out the lawsuit, or continue with the partial injunction, he added.CBAI is looking to remove the language of the law from the legislative books, having unsuccessfully tried last year. The association sees the law as punitive to community banks. Each violation carries a $1,000 fine, Peck said, making significant fines a possibility due to the high number of interchange transactions banks process daily..Neighboring state banker associations are concerned a similar bill could pass in their jurisdictions. Interchange fee legislation has been introduced in Iowa for five straight years but has not advanced, said Iowa Bankers Association Senior Vice President of Government Relations Sharon Presnall. Such legislation would be especially problematic in Iowa as the state’s payments infrastructure does not enable taxes to be excluded from the interchange fee, she added.“The Iowa Bankers Association believes interchange rates and governance should be set by the free operation of the market forces in the private sector,” according to the association. “Iowa banks oppose proposals to have state or federal governments set price controls or otherwise regulate interchange rates, which currently are set by the private market through contractual relationships.”The Wisconsin Bankers Association and Nebraska Bankers Association are also trying to prevent a similar interchange fee bill from being introduced.“Government price controls have never worked,” said NBA President/CEO Richard Baier. “They are not a strategy that has ever worked in our country or our state.”In Minnesota, an interchange fee bill could be introduced but will likely not pass with the legislature’s divided composition, said Therese Kuvaas, senior government relations manager at the Minnesota Bankers Association.Cryptocurrencies/stablecoinsThough once considered a fringe part of the payments world, cryptocurrencies and stablecoins are emerging as major players in finance and making inroads in multiple states.Nebraska’s Department of Banking and Finance issued a charter last year to Telcoin Digital Asset Bank to operate a digital asset depository institution in the state, the first of its kind in the country. A blockchain neobank, Telcoin released the first bank-issued stablecoin, eUSD, in late December.“Nebraska is leading a new era of digital payments by issuing a charter to a digital asset bank that can ‘mint’ stablecoins,” said Gov. Jim Pillen. “Our message to the industry is simple: Nebraska is open for your business.”In a letter sent before approval to Nebraska Department of Banking and Finance Director Kelly Lammers, NBA said Telcoin Bank should instead be referred to as Telcoin Digital Asset Bank, “to protect consumers from being misled into believing nonbank businesses are subject to the same strict regulations as banks.”Though NBA has cautioned its members about the risks of the crypto sector, it sees business opportunities for vendors looking to help banks with the new technology.The Illinois Department of Financial and Professional Regulation is authorized to regulate digital assets and the companies handling them within the state. Though crypto was once thought of as being at arms-length from banks, Peck sees digital assets as a major concern for traditional financial institutions, many of which have been slow to adapt.The GENIUS Act passed at the federal level last summer, establishing a regulatory framework for stablecoins. Wyoming Bankers Association President/CEO Scott Meier sees uncertainty on whether the law applies to Wyoming. The state issues its own stablecoin, and the law as written only applies to individuals, trusts or corporations that issue stablecoins. If the state’s stablecoin starts offering a yield, bankers are concerned it will be a place of stored value instead of a payments rail, potentially reducing traditional bank lending..The crypto sector remains a major issue for the North Dakota Bankers Association, especially how Treasury implements GENIUS, said President/CEO Rick Clayburgh. NDBA, along with other industry trade groups, urge the U.S. Senate to close what they see as a loophole allowing crypto exchanges/affiliates to pay yield on stablecoins..While the state of Wyoming and Office of the Comptroller of the Currency have issued three charters for digital asset providers, none have been authorized to access the Federal Reserve payments system. The Wyoming Bankers Association is not opposed to blockchain technology, Meier added. He sees benefits for banks in the space — potentially to record deeds — and knows the emerging technology is especially popular among younger customers.Though some community bankers have waited for larger banks to innovate, Meier said they no longer have that option and must evolve as quickly as possible. Smaller banks must adjust to how younger customers bank, he added. “They don’t know their bankers like they used to,” Meier said of younger generations.FraudState banker associations list fraud prevention as one of the top legislative issues facing community bankers at the state and federal levels. Clayburgh said a significant source of fraud points back to technology and communications providers knowing — but not addressing — their platforms are being used for scams.In 2020, the Minnesota Legislature boosted protections for vulnerable adults by creating an expedited court process for injunctions to freeze assets and halt transactions. The bill also granted immunity to financial institutions for reporting suspected abuse. Kuvaas said the legislature is considering broadening that legislation to allow customers to opt-in to enable their bank to call a trusted contact when fraud is suspected.Kuvaas expects the legislature to consider putting more barriers around virtual currency kiosks, after it updated regulations in 2023 by adding a $2,000 daily transaction limit for new customers. The regulation also established a 72-hour refund window for first-time users who fall victim to fraud.In May, the Wisconsin Department of Financial Institutions issued a letter to crypto ATM owners reminding them they had to be licensed and follow related disclosures. The Wisconsin Bankers Association is pushing for daily deposit limits on crypto ATMs to be codified into law. WBA is trying to allow banks to pause transactions to prevent customers from losing money to fraud.Meier sees another top priority as stopping fraud at unregulated crypto kiosks and through paper checks. The Wyoming Bankers Association has testified with AARP to call attention to fraud at crypto kiosks. “We don’t have a lot of interaction with checks like we used to, but people are still writing checks,” Meier added.In 2024, the Nebraska Legislature created protections for crypto ATM users by mandating licensing, fraud warnings, transaction limits and refunds for fraud. Still, fraud remains a pressing issue in the state. A federal grand jury in Nebraska charged 54 individuals in mid-December for allegedly stealing millions of dollars from bank and credit union ATMs across the country. According to the Department of Justice, the perpetrators developed and used malware to hack into ATMs and force the machines to dispense cash.Baier attributes the rise in fraud to scammers becoming more sophisticated in their tactics. The sophistication of software allows fraudsters to copy check signatures, with unwitting victims only later realizing the check was bad.“We have reached a tipping point,” Baier said.Environmental social governance (ESG)National and state banking trade groups oppose environmental social governance proposals mandating banks to serve (or not serve) certain industries as government overreach. In 2024, an unpassed bill introduced by Nebraska Sen. Kathleen Kauth would have required managers of the state’s public pension funds to only consider financial factors, and ban promoting ESG goals.A bill passed last year in Wyoming requires the state treasurer and retirement board to ensure investments are made on financial considerations. Wyoming officials have opposed ESG practices they see as harming coal, natural gas and agriculture sectors, which are considered vital to the health of the state.While President Donald Trump has sought to end what he deems the debanking of certain industries, Meier said the issue is minimal in Wyoming. While some banks have said they will not bank the oil, coal and gas industries, that decision sometimes reflects the logistics of the bank, not political considerations, Meier added. In those situations, other banks have stepped up to bank those sectors.