It was announced this morning that TCF Bank would challenge the constitutionality of the Durbin amendment in the Dodd-Frank Act (Financial Deform Bill). The amendment gives the Federal Reserve the power to set debit card interchange fees. These fees are collected every time someone swipes their debit card. Currently the merchant pays these fees for the service banks provide to them on these transactions. The Amendment directs the Federal Reserve Board to measure the processing costs of authorizing, clearing and settling debit card transactions and then to adopt regulations setting debit card interchange rates based on those costs alone. The law only applies to banks with $10B or more in assets making the playing field unfair since thousands of banks are not subject to this amendment.
From TCF Bank on this law:
“It is unprecedented for Congress, or any regulatory agency, to mandate a fee charged in the free market that not only denies a reasonable rate of return on investment, but actually requires the rate to be lower than the incremental cost of providing the service,” said William A. Cooper, Chairman and Chief Executive Officer of TCF Financial Corporation. “Furthermore, the Amendment affects only one percent of the nation’s banks, giving thousands of unaffected banks an unfair competitive advantage.”
“We believe these provisions violate our Constitutional rights on three separate grounds: the regulations take our property without just compensation and without Due Process of Law; and they also deny us Equal Protection under the law,” Cooper said. “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!”
“The Durbin Amendment blatantly confiscates TCF’s assets by denying the bank an opportunity to earn a fair rate of return on its assets. The Amendment also engages in invidious discrimination against the bank by making it impossible for it to compete on even ground with the thousands of banks that are exempted from the Amendment,” said Richard A. Epstein, a constitutional law scholar who, along with Timothy D. Kelly of Kelly & Berens P.A., has served as counsel to TCF on this case. “Well-established Supreme Court case law prohibits Congressional rate regulation that does not allow the bank to attract and retain the capital necessary to run its debit card business,” Epstein added.
Congress has never enacted any regulatory statute like the Durbin Amendment before: one that requires an administrative agency to order sellers of a product or service to cut their rates to a rate far below their actual cost of delivering the product or service, and then exempts ninety-nine percent of the sellers from the new confiscatory rate. Moreover, the Durbin Amendment was a last minute addition to the Dodd-Frank Act’s comprehensive overhaul of the financial services industry. Neither the Senate nor the House held any hearings on the provision, which would have allowed for public analysis of its most questionable provisions. Few people in Congress, therefore, grasped its revolutionary implications and its punitive impact on the few banks subject to its restrictions.
When asked if TCF was unsuccessful in this lawsuit what would they do to make up for the lost revenue? They responded of course it would have to be made up from additional fees to their customers as it would I’m sure with the 90 other banks subject to this law. Let’s hope they are successful or we will see free checking accounts disappear forever.
If anyones interested you can listen to this morning’s teleconference via the web: http://ir.tcfexpress.com
I’ll be following this one as it should be interesting. Chairman and CEO Bill Cooper also just happens to be a past Minnesota State GOP Chairman.