TCF Suit Challenges Financial Reform Amendment

TCF Chairman and CEO William A. Cooper said that the provisions of the Durbin amendment violate the bank's constitutional rights on three grounds.

TCF National Bank on Tuesday filed a lawsuit against the six members of the Federal Reserve System's board of governors, challenging the constitutionality of an amendment in the recently passed federal Wall Street financial reform act, or the Dodd-Frank Act.

Congress included the Durbin amendment at the last minute and without holding hearings-which would have allowed for public analysis of its “questionable provisions,” TCF-a subsidiary of Wayzata-based TCF Financial Corporation-said in a news release.

The Durbin amendment limits the interchange fees that the bank can charge retailers on debit card transactions. It directs the Federal Reserve Board to measure the processing costs associated with debit card transactions and then to adopt regulations setting debit card interchange rates based on those costs. In reality, those processing costs amount to only a fraction of the total costs that banks incur to manage the debit card system, TCF said.

Additionally, the amendment only applies to banks that have $10 billion or more in assets-a group that includes just 1 percent of banks in the United States, TCF said. Other, smaller banks can continue to charge retailers the current interchange rates and recover all of their costs plus a profit-which will result in a competitive disadvantage for larger banks, according to TCF.

“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,” William A. Cooper, chairman and CEO of TCF Financial Corporation, said in a statement.

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.

“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,” Cooper said in a statement. “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!”

Shares of TCF's stock were down about 3.5 percent to $15.38 mid-morning Tuesday following the company's announcement about its lawsuit, which was filed in South Dakota.

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