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News Now

CU System
Fed in TCF case files appeals court argument
WASHINGTON (5/24/11)--Free market vs. price fixing in the interchange debate has found its way into the Federal Reserve Board arguments filed Friday against TCF National Bank's appeal to block the Fed's implementation of proposed debit card interchange fee cap regulations. In its brief, filed in the U.S. Court of Appeals for the Eighth Circuit, the Fed argued that TCF Bank's expectation for a continued revenue stream from debit transactions is not dependent on the free market but on card companies such as Visa, who set the prices. In its court case brief, the Fed maintained that the a debit card interchange fee cap contained in the Dodd-Frank Wall Street Reform Act "seeks to correct inefficiencies in the market for debit card service by requiring that interchange fees be "reasonable and proportional to the costs of debit transactions is entirely consistent with principles of due process." It noted that TCF Bank "characterizes its interest as a 'right to recover costs plus a reasonable return on the capital invested in its extensive, debit card operation." A protected interest, however, must be more than a unilateral expectation or an abstract need and cannot be merely speculative, the Fed argued. "Nothing in plaintiff's contract with Visa guarantees any minimum interchange fee or even limits the circumstances in which Visa can reduce the fee schedule," said the Fed, noting the lower district court found that "Visa retains unmitigated discretion to set debit interchange fees and there is no statutory or contractual provision guaranteeing TCF a certain level of interchange income." The Fed also indicated that "a continuing threat of litigation creates a meaningful risk that Visa will have to make additional fee adjustments." The bank had argued that Visa has the theoretical right to cut its interchange drastically but said economic and business constraints on Visa will prevent it from substantially reducing the fees. Its appeal is from a decision by the U.S. District Court for the District of South Dakota in Sioux Falls, in which the court denied the bank's motion for a preliminary injunction on April 4 but also did not dismiss the case. TCF's lawsuit, filed in October, states the government cannot write laws--such as the interchange law--that would arbitrarily prevent a business from recovering its costs sufficiently to avoid losses on its business operations. The Credit Union National Association as well as the Clearing House Association LLC, American Bankers Association, Consumer Bankers Association, The Financial Services Roundtable, Independent Community Bankers of America, Midsize Bank Coalition of America, and the National Association of Federal Credit Unions have backed TCF in its suit.


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