Fed Reserve Wants TCF’s Debit-Card Fee Suit Dropped

The Federal Reserve's board of governors claims in recently filed court documents that TCF's lawsuit challenging the constitutionality of new financial regulations lacks merit and should be thrown out.

The Federal Reserve's board of governors on Friday filed court documents asking a federal judge to dismiss a lawsuit filed against it by TCF Financial Corporation.

TCF sued six members of the Federal Reserve's board in October, challenging a portion of the Wall Street financial reform act, or the Dodd-Frank Act, which was passed by Congress in July 2010.

Specifically, TCF contests the Durbin amendment, which limits the interchange fees that a bank can charge retailers on debit card transactions. Congress tacked on the amendment at the last minute without holding hearings that might have allowed the public to see problems with the provision, according to TCF.

And the amendment only applies to banks that have $10 billion or more in assets, resulting in a disadvantage for larger banks, TCF says. The bank argues that the proposed rule would cause it to lose significant revenue and is unconstitutional on three grounds: the regulations take its property without just compensation and without due process of law, and they deny it equal protection under the law.

In a 54-page memorandum filed in U.S. District Court in South Dakota, the Federal Reserve governors contested each of TCF's allegations and asked that the court throw out the lawsuit.

The board points out that preliminary injunctions like the one requested by TCF are meant for extraordinary situations, and the bank has not sufficiently demonstrated that its constitutional rights have been violated or that it has been threatened by irreparable harm.

TCF claims that it will be harmed by the future loss of interchange fee revenue, which will also damage its stock price. The Federal Reserve board states that the alleged loss is “neither imminent nor certain,” as the bank has not provided evidence that it will lose customers or stockholders.

The board also argues that TCF can't attribute a recent dip in its stock price to the proposed regulations, as the bank's stock has fluctuated significantly in the past-and it has in fact at times traded at a higher price since the enactment of the Dodd-Frank Act.

In addition, TCF hasn't exemplified how its existing contracts with credit card companies entitle it to the current level of interchange fees it receives, and the bank hasn't referenced any statute or regulation that guarantees it those fees.

“At its core, the proposed relief would cut deeply against the strong public interest in well-functioning payment card networks, not to mention the public's interest in having ultimate policy decisions behind the regulation of electronic transfer of funds rest with Congress's legislative vision and the board's implementation,” the governors wrote.

The purpose of the amendment was to allow the board to establish standards for determining whether the amount of the interchange fees is “reasonable and proportional”-and TCF would rather “impose its own vision” of what constitutes a fair charge, the board contends.

Last month, news surfaced that TCF may be gaining ground in its fight against the new restrictions, as banking industry lobbyists said that a number of Congressional Republicans and Democrats had recently begun exploring alternatives to the Federal Reserve's proposal.

With approximately $18 billion in assets, Wayzata-based TCF Financial Corporation is Minnesota's second-largest bank holding company. It has 442 banking offices in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona, and South Dakota.