Tuesday, November 02, 2010

Bank suing the Fed over ‘Durbin amendment’ to financial reform act

People following the banking industry's shenanigans may be familiar with the so-called Durbin amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The amendment targets the interchange fees that merchants pay to their banks for their customers' Visa card use.  In short, merchants have been saying for some time now that the fees are prohibitively high, and banks are saying that the fees are simply the cost of doing business.

Well, the amendment was passed with the rest of the Act, and not without fervent attempts (of questionable legality) to stop it on the parts of many banks; notably, Minnesota-based TCF Bank:
Like many banks that issue debit or credit cards, TCF is quite worried that Congress will slash fee income from cards. TCF has asked customers to write Congress to oppose such legislation. And [CEO Bill] Cooper says about 120,000 customers have responded. 
The bank has also asked employees for support. At one point, an e-mail went out to TCF executives asking them to keep track of which employees wrote Congress. That could have gotten the bank in legal trouble, and the request was withdrawn within a few hours.
Cooper said it wasn't his idea. 
"Somebody may have done that," Cooper said. "If that did happen, I don't know about it. And I can assure you that if that happened, it wasn't instructed."
Sure, Bill.  Sure.

Well, now Bill Cooper has decided to take his frustration out on the Fed by way of a lawsuit.
The Wayzata-based regional bank, which collects about $100 million a year from interchange fees, is seeking a court order declaring the Durbin amendment unconstitutional and an injunction barring its enforcement. 
The bank's chairman and chief executive officer, William Cooper, says the law unconstitutionally takes away TCF's property in the form of fees and violates the bank's right to equal protection by favoring smaller banks. 
Unable to sue Congress, Cooper decided instead to sue his own regulator, Federal Reserve chairman Ben Bernanke and the Fed's board of governors.
You can read the lawsuit here.

If you don't feel like reading all 54 pages, allow me to summarize:

Cooper is extremely angry that this amendment passed because it was pushed through late in the session and wasn't debated.  He's upset that TCF is a relatively small bank compared to the bigger institutions originally targeted.  Mostly, though, he's really upset that he won't be able to get away with charging customers for the use of their debit cards to recoup the loss in revenue:
TCF cannot, in response to the Durbin Amendment, begin charging its customers for debit cards to recoup lost revenues; customers would quickly migrate to the exempt banks, use credit cards (issued by other banks) as debit cards, or return to the more inefficient use of written checks. Nor can TCF drop its debit service--TCF’s customers expect and demand that their checking accounts include this service. TCF is left with no choice but to continue to provide debit cards at no cost to its customers. In that event, TCF’s costs will remain largely unchanged, but TCF will be able to recover only a small portion of those costs.
Since TCF recently had to change their overdraft policies, just like the rest of the banks here in the US, their profits have been cut drastically.  TCF is unique in that more of their profits came from overdraft fees than most other banks, so they're already smarting over that.  In response, TCF is ordering their branch employees to force lie to aggressively promote customers to "opt in" to their overdraft services, which would charge customers $35 per overdrafted transaction.  Keep in mind that TCF, like Wells Fargo and other large national banks, posts their customers' transactions in highest-dollar-amount to lowest-dollar-amount order, potentially causing more overdraft fees than the customer would have received had the bank posted the transactions in chronological order.  Wells Fargo lost a class action lawsuit over this practice recently, and it appears TCF is going to be following suit, as consumers are now suing the bank for the very same reason.

It seems as though TCF is in a bad spot, as revenues from overdraft fees are sharply declining, and profit from gouging merchants for interchange fees are looking to be headed in the same direction.  Cooper's reasoning for the lawsuit, however, doesn't seem to hold water.  Senator Durbin's statement on the amendment:
The Durbin amendment would direct the Fed to issue rules to ensure that debit interchange fees are reasonable and proportional to the processing costs incurred.
Senator Durbin responded to the lawsuit:
"The law in no way addresses the fees TCF, or any other bank, can charge and it does not set interchange rates," Durbin said, adding that the law was a "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."
Cooper insists that, rather than exactly what is written in the law itself, the Durbin amendment unconstitutionally sets the prices that banks like his are allowed to charge merchants who, as he says, are simply trying to rake in more profit for themselves, and will not pass the savings on to customers:
"It is nothing but blatant lobbying by one industry [retailers] to take advantage of the political weakness of another," Cooper said. "Do you think Wal-Mart is going to give this money to charity? Why do you think they spent all this lobbying money to get it done?"
Ultimately, Cooper believes that TCF is too small of a bank to be subject to these new restrictions, and probably just fears that he won't be able to have enough money to donate to Michele Bachmann to do his bidding, and MN Forward, the organization that supports Tom Emmer for Minnesota governor, and is actively anti the LGBT community.  This is unsurprising, as Bill Cooper is the former chair of the Minnesota GOP.

(LOL, he's concerned about lobbying.)

I'm interested to see the results of this lawsuit.