Magazine article American Banker

TCF, Fighting Dodd-Frank, Seeks Allies; "In Some Ways, This Is a Line in the Sand for the Industry"

Magazine article American Banker

TCF, Fighting Dodd-Frank, Seeks Allies; "In Some Ways, This Is a Line in the Sand for the Industry"

Article excerpt

Byline: Paul Davis

Beating the Dodd-Frank Act in court will be a longshot, but TCF Financial Corp. is willing to try it - and called on others to follow its lead.

William Cooper, TCF's chairman and chief executive, said Tuesday that its lawsuit against the Federal Reserve Board to block caps on debitcard interchange fees is about more than preserving revenue, and that the industry could face worse restrictions if it stands idle.

"In some ways, this is a line in the sand for the industry," an emotional Cooper said during a conference call with analysts to discuss TCF's decision to protest the so-called Durbin Amendment as an unconstitutional encroachment on property rights.

"If we don't clarify things now, we'll see a lot more of this," Cooper said. If the interchange rules aren't challenged, he said, lawmakers could eventually seek caps elsewhere, such as charges for mortgages and other products.

Objecting to the law on constitutional grounds makes strategic sense, but it might be a difficult tack, some legal experts said. "You can certainly bring a lawsuit, but can you win it?" asked V. Gerard Comizio, a partner at Paul Hastings, Janofsky & Walker LLP. "You must make a hard case for economic discrimination, and it is a very challenging case to prove."

Regardless, several other banking companies are weighing their options on interchange fees and other aspects of Dodd-Frank. Unlike TCF, however, most are willing to wait to see how the Fed implements the slew of policies outlined in the law.

"There are plenty of opportunities to challenge the law," said a lawyer who asked not to be named, citing legal relationships with several banking companies.

Several said that TCF is taking an unusual step by challenging interchange fees before the Fed acts. TCF's complaint, filed Tuesday in the U.S. District Court for South Dakota against the Fed, argues that caps forcing certain banks to offer debitcard interchange below cost strip the company's property rights without compensation and violates due process rights. The suit also takes aim at an exemption for smaller banks, which TCF said would put it and about 100 other banks at an unfair disadvantage.

Cooper said he is concerned that customers, irate over higher fees, could leave TCF and other big banks since the Durbin amendment exempts banks with less than $10 billion of assets from caps on interchange fees on debit cards.

"We filed the lawsuit now because we would like this matter resolved before the Fed comes out with rules," he said.

"It is possible or even likely that the Fed will have to go back to the Congress and say they need more time to survey and analyze the market," Cooper added. The Fed is scheduled to issue a draft rule early next month, with the final rule due April 21. It is expected to take effect in July.

TCF, of Wayzata, Minn., generates $100 million in annual revenue from interchange fees, though Cooper declined to say how much of that would be at risk if the caps are introduced. He complained that his $17 billion-asset company will have to charge customers more to help offset the revenue shortfall, while the rules will lower the costs of big retailers such as Wal-Mart Stores Inc. …

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