TCF Contests Motion to Dismiss Debit-Card Fee Suit

The company claims that of the almost $52 million in costs that it incurred for debit-card transactions that took place between August 1, 2009 and July 30, 2010, it would have recovered only $22.7 million under the new rules proposed by the Federal Reserve.

TCF Financial Corporation on Friday filed court documents opposing a recent U.S. Justice Department motion to dismiss a lawsuit that TCF filed-a lawsuit that aims to stop the federal government from imposing new limits on debit-card fees charged to retailers.

Wayzata-based 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. 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.

According to legal briefs filed Friday in U.S. District Court in South Dakota, TCF said that it began distributing Visa debit cards to its checking account customers in 1995. Today, more than 800,000 customers use TCF-branded Visa debit cards each month-and more than 1.5 million customers have the company's Visa debit cards.

Between August 1, 2009 and July 30, 2010, TCF generated interchange revenue of just over $100 million. TCF said that incremental costs directly related to debit cards during that time was just under $52 million-and it would have only recovered $22.7 million in under the new rules proposed by the Federal Reserve.

TCF said in a Friday statement that the U.S. Justice Department-which is representing the Federal Reserve governors in the lawsuit-“did not contest the price-fixing aspect of the Durbin Amendment, which will compel debit interchange fees to be set below actual cost.” However, the department “contends that the constitutional protections prohibiting arbitrary price controls exist only to protect utilities and that other American businesses have no constitutional protection against expropriation by the government through below-cost price fixing.”

TCF asked for a preliminary injunction, and that motion will be heard April 4.

In addition to the legal briefs that TCF filed last week, several groups also motioned to file amicus curiae briefs. Such briefs constitute information that's offered to assist a court in deciding a matter before it even when a testimony hasn't been solicited by the parties involved in the case. Some of the groups that support TCF include The Clearing House Association, LLC, the American Bankers Association, the Consumer Bankers Association, the Credit Union National Association, the Financial Services Roundtable, Independent Community Bankers of America, Midsize Bank Coalition of America, and the National Association of Federal Credit Unions.

The Federal Reserve governors have contested each of TCF's allegations and asked that the court throw out the lawsuit.

The board pointed 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.

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 said in court documents.

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.

With approximately $18.5 billion in total assets, TCF Financial Corporation-which operates subsidiary TCF National Bank-is Minnesota's second-largest bank holding company. It has 442 branches in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona, and South Dakota.