(Click here for previous CSP Daily News coverage of the c-store industry's battle for swipe-fee reform.)
The Durbin Amendment directs the Fed to measure the processing costs of authorizing, clearing and settling debit-card transactions and then to adopt regulations setting debit-card interchange rates based on those costs alone, TCF said in a statement announcing the suit.
In total, these processing costs amount to only a fraction of the total costs required to manage the debit-card system and deliver the product, TCF said. The amendment also explicitly mandates that the Fed ignore other costs incurred by banks associated with the creation, administration and improvement of their debit card systems, it claimed.
"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," said William A. Cooper, chairman and CEO of TCF Financial Corp.
The amendment applies only to banks like TCF with $10 billion or more in assets, which constitutes just 1% of banks in the country, and exempts all others, TCF said. "The thousands of banks exempted from the amendment will be free to continue to charge retailers the current debit-card interchange rate and recover all their cost plus a profit. This will result in an irrational competitive disadvantage for banks like TCF that are subject to the new regulations," the TCF statement claimed.
The Merchants Payment Coalition, however, said in a statement responding to the suit that "in March, before a group of investors and analysts, Cooper let slip the real reason big banks were opposed to common-sense swipe fee reform. Cooper told those gathered that swipe fees were essentially pure profit: 'Most of that revenue drops directly to our bottom line'."
It added, "That was bolstered by Cooper's statement....that TCF's retail banking will still be profitable after the Durbin Amendment is implemented, just not quite as profitable as it would be with more interchange revenue. Congress stepped in because hidden swipe fees became a secret cash machine for big banks at the expense of retailers and small businesses. These feeslargely hidden from the publichad tripled from 2001 to 2008. Cooper's cry of poverty for big banks is laughableand his own words are proof of that."
Cooper went on to discuss what TCF sees as the constitutionality of the amendment: "We believe these provisions violate our constitutional rights on three separate grounds: the regulations take our property without just compensation and without due process of law; and they also deny us equal protection under the law," he said.
He added, "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. 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."
Richard A. Epstein, a constitutional law scholar who, along with Timothy D. Kelly of Kelly & Berens PA, has served as counsel to TCF on this case, said, "The Durbin Amendment blatantly confiscates TCF's assets by denying the bank an opportunity to earn a fair rate of return on its assets. The amendment also engages in invidious discrimination against the bank by making it impossible for it to compete on even ground with the thousands of banks that are exempted from the Amendment. Well-established Supreme Court case law prohibits Congressional rate regulation that does not allow the bank to attract and retain the capital necessary to run its debit card business."
TCF also said in the statement that "Congress has never enacted any regulatory statute like the Durbin Amendment before: one that requires an administrative agency to order sellers of a product or service to cut their rates to a rate far below their actual cost of delivering the product or service, and then exempts 99% of the sellers from the new confiscatory rate. Moreover, the Durbin Amendment was a last-minute addition to the Dodd-Frank Act's comprehensive overhaul of the financial services industry. Neither the Senate nor the House held any hearings on the provision, which would have allowed for public analysis of its most questionable provisions. Few people in Congress, therefore, grasped its revolutionary implications and its punitive impact on the few banks subject to its restrictions."
MPC is a group of retailers, supermarkets, drug stores, c-stores, fuel stations, online merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition's member associations collectively represent about 2.7 million stores with approximately 50 million employees.
TCF National Bank is a subsidiary of TCF Financial, a Wayzata, Minn.-based bank holding company with $18 billion in total assets.
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