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TCF Financial Lawsuit Challenges Durbin Amendment

Oct. 16, 2010
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[Updated May 3rd, 2011]: TCF asked a federal appeals court to prevent the implementation of the Durbin Amendment. On April 4th, a US District Court judge ruled regulation of interchange fees to be constitutional, but the bank is seeking a stay of the law as its suit moves through the appellate process.

On April 4th, Judge Lawrence Piersol denied TCF’s request to stop the law, but also refused to throw the case out altogether. TCF’s newly filed brief is just the latest in the ongoing saga that is TCF National Bank v. Bernanke.

I’ve mentioned quite a few times in the past that banks are not happy about the Durbin Amendment to the Dodd-Frank Bill.  This is the amendment that mandates the Fed to oversee the interchange fees that networks like Visa and MasterCard charge to merchants when you swipe your debit card.  These fees help subsidize many of the other services that banks offer, like free checking accounts, which is why some banks (like Bank of America) have started imposing new fees and deposit minimums on their accounts.

Well now, one bank has decided to fight back.

TCF Bank takes the case to court

TCF Financial, a smallish Minnesota bank has decided to sue the Federal Reserve over the constitutionality of the law.  TCF is challenging Bernanke for three reasons:

  1. Restricting the law to banks with more than $10bn in assets only affects 1% of the bank in America
  2. The Fed study to determine what fees to charge doesn’t take into account the full cost of providing the services
  3. New regulations prevent banks like TCF from earning a fair rate of return on their assets

The CEO of TCF even takes it a step further with a great Burger King analogy:

The statute makes no more sense than regulating the price of a Burger King hamburger solely to the costs of the meat and the bun. To stay in business, Burger King has to sell burgers at prices that cover more than those costs; it also has to cover costs such as paying an employee to make the hamburger and another employee to serve it, the cost of the building and maintenance, as well as the costs incurred to advertise and promote the product. Under the Durbin Amendment, TCF only gets to recover the cost of the bun!

So who knows whether anything will actually come of this, but it’s clear that banks are trying to get aggressive about all of the new regulations.  First that just meant imposing new fees, but now we may see more banks step up to challenge the laws outright.

[Updated May 3rd, 2011] In the brief filed with the appellate courts, TCF’s lawyers argued that debit interchange regulation represents an intrusive government  foray into the private sector. “We are talking about the establishment of a confiscatory rate regime fully 15 years after banks began their debit businesses.” According to Bloomberg, a Justice Department spokesman wasn’t immediately available to comment.