Durbin Amendment Faces Constitutional Challenge

Oct. 14, 2010

A Minnesota bank this week filed a lawsuit challenging the constitutionality of the Durbin Amendment, the measure added to the Wall St. financial reform package limiting swipe fees on debit cards that was signed into law by President Obama this summer. In its suit, the Wayzata, Minn.-based TCF National Bank charges that the amendment’s passage without debate violates the bank’s right to due process and that the exemption for financial institutions with less than $10 billion in assets denies TCF equal protection, also guaranteed under the Constitution. The law’s directive to the Federal Reserve to base transaction fees on the costs of authorizing, clearing and settling debit card transactions alone “requires the rate to be lower than the incremental cost of providing the service,” according to William A. Cooper, chairman and CEO of TCF Financial Corporation, TCF National Bank’s parent. “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,” said Cooper. “To stay in business, Burger King has to sell burgers at prices that 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.” Senator Richard Durbin, who lent his name to the provision and championed its inclusion in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, predictably disagrees with TCF’s challenge. “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 nickeled 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.”