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Bank files suit over Interchange Amendment; calls it "unconstitutional"

Last week Sen. Richard Durbin (D-IL), defended the debit card interchange amendment that bears his name, while suggesting that the bank that has brought suit against it in federal court does not really understand it. Minnesota based TCF National Bank brought legal action against the Federal Reserve, the agency charged with implementing the law, alleging that the debit card interchange regulating amendment is unconstitutional.


In response to the lawsuit Durbin released the following statement:
"TCF’s complaint not only fundamentally misunderstands the law regarding interchange fees, but it also ignores the facts,” Durbin said. “The law in no way addresses the fees TCF, or any other bank, can charge and it does not set interchange rates. Our language simply ensures that debit interchange fees charged to retailers by the card networks – not the banks -- are ‘reasonable and proportional’ to the cost of processing transactions and provides competition in an area of the market where there’s none.

Congress approved this language by a wide bipartisan margin in reaction to the frustrations of millions of merchants and consumers who were getting nickled and dimed by the anticompetitive interchange system set up by big banks and credit card companies – including TCF. I look forward to this provision’s day in court and am confident that our language will be found to be fair and Constitutional.”

According to the TCF complaint, the law is unconstitutional because it only applies to banks of a certain size and does not allow recovery of cost and profit for affected financial institutions.TCF also cited a lack of legislative history for the amendment. A single, brief hearing was held in the weeks leading up to the financial reform legislation vote, and the interchange legislation also saw little debate in Congress prior to its passage.


The complaint also noted that while Durbin claimed his amendment would reduce fees charged by credit card issuers and debit network operators, the legislation only addresses the fees charged by debit card issuers. "There is no obligation under the amendment to pass cost savings on to consumers," the complaint adds.


The interchange legislation, which was passed as part of comprehensive financial regulatory legislation earlier this year, directs the Federal Reserve Board to write rules on interchange fees for debit card purchases. While the interchange provision exempts small credit unions and other financial institutions with under $10 billion in assets from any interchange changes, these institutions would still be impacted directly by whatever rates are established. TCF in the complaint called this $10 billion threshold "arbitrary."


CUNA's SVP/Deputy General Counsel Mary Dunn said that the lawsuit aims to delay the Fed from writing regulations until a full hearing on the interchange provisions can occur.

The federal government has 60 days to respond to the complaint.