TCF Opposes New Rules Proposed by Fed. Reserve

A new Federal Reserve Board proposal would implement provisions in the recently passed Wall Street Reform Act-provisions that prompted Wayzata-based TCF to file a lawsuit in October.

The Federal Reserve Board on Thursday proposed new rules regarding interchange fees that merchants pay banks when customers make debit card transactions.

The proposal would implement provisions in the recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act-provisions that prompted Wayzata-based TCF National Bank to file a lawsuit in October against the six members of the Federal Reserve System's board of governors

The proposed rules would “establish standards for determining whether a debit card interchange fee received by a card issuer is reasonable and proportional to the cost incurred by the issuer for the transaction,” according to the Federal Reserve Board.

In its lawsuit, TCF challenged the constitutionality of the Dodd-Frank Act's Durbin amendment, which limits the interchange fees that large banks can charge on debit card transactions. The bank claimed that the limits wouldn't cover all of the costs that banks incur to manage the debit card system-and financial analysts have said that they expect banks to make up for that lost money by boosting other fees and modifying rewards programs.

The amendment and the recently proposed rules only apply to banks that have $10 billion or more in assets-a group that includes just 1 percent of banks in the United States.

Thursday's proposal would limit interchange fees at 12 cents per transaction-more than 70 percent lower than the 2009 average, according to the Federal Reserve Board. The new rule would take effect on July 21, 2011.

TCF spokesman Jason Korstange told Twin Cities Business on Friday that he's not at all surprised by the proposed rules. In fact, the bank filed its lawsuit in anticipation of them.

“We're going to continue on with the lawsuit,” he said. “We believe that the amendment is unconstitutional in several different ways. Until [the lawsuit] is over, we probably don't have much else to say about the rules.”

In October, TCF Chairman and CEO William A. Cooper said that the amendment's provisions violate the bank's constitutional rights 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.

“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,” he said in a statement.

In addition to imposing interchange fee restrictions, the Federal Reserve Board's proposal also aims to increase competition by requiring that transactions be able to be processed over more than one network.

The Federal Reserve Board will accept comments about its proposal until February 22.

With approximately $18 billion in assets, TCF Financial Corporation-under which TCF National Bank operates-is Minnesota's second-largest bank holding company. It has 441 banking offices in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona, and South Dakota.