Interchange rules unconstitutional, lawsuit charges

WASHINGTON (10/12/10)—Decrying Sen. Richard Durbin's (D-Ill.) interchange fee legislation as "unconstitutional," TCF National Bank on Tuesday brought legal action against the Federal Reserve, the agency charged with implementing the law.

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."

The Credit Union National Association's (CUNA) Senior Vice President/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. TCF will file a motion for a preliminary injunction within a few weeks, and will ask the court for an expedited judgment.

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