Wells Fargo CEO Joins Debit-Card Fee Debate
San Francisco-based Wells Fargo & Company's top executive has joined the debate surrounding proposed regulations on debit-card fees, and his arguments align with those of other financial institutions, such as TCF Financial Corporation.
Wells Fargo CEO John Stumpf, speaking before the Economic Club of Minnesota this week, described the proposed regulations as “government price controls” that will ultimately result in banks passing along the cost to customers, according to a report by the Star Tribune.
At the heart of the debate is a portion of the Wall Street financial reform act, or the Dodd-Frank Act, which was passed by Congress in July 2010. Specifically, the Durbin amendment-which limits the interchange fees that a bank can charge retailers on debit-card transactions-has been criticized by some financial institutions.
Wayzata-based TCF has led the fight: The company sued the six members of the Federal Reserve System's board of governors in October, describing the rules as unconstitutional.
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 because the regulations take its property without just compensation and without due process of law, and they deny it equal protection under the law.
The U.S. Justice Department recently filed a motion to dismiss TCF's lawsuit-a motion that TCF contested earlier this week.
TCF claims that it will not be able to recover the actual costs for the transactions and will not receive any profit as a result of the new regulations.
For example, between August 1, 2009 and July 30, 2010, TCF generated interchange revenue of just over $100 million. The bank claims 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.
In a separate legal filing, David Stautz, senior vice president, controller, and assistant treasurer for TCF, said that the company would need to eliminate up to 1,777 employees to mitigate the revenue lost as a result of the Durbin Amendment.
According to the Star Tribune, Wells Fargo's Stumpf, like others in the industry, is calling for merchants, consumers, and bankers to engage in more discussions about the regulations before they're implemented.
He also reportedly argued that the debit-card fee cap is the result of politics, and does not have consumers' interests in mind-adding that debit fees aren't the cause of the recent economic downturn and more important issues, such as housing, should be a priority right now.
Wells Fargo and TCF aren't the only organizations voicing opposition. In addition to the legal briefs that TCF filed last week, several groups-including The Clearing House Association, LLC, the American Bankers Association, and more-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.