Dodd-Frank Act Faces Lawsuit

Major debit-card issuer TCF Bank announced today that it is suing the Federal Reserve Board over a provision of the Dodd-Frank Act that allows the board to lower debit-card fees charged by institutions with $10 billion or more in assets.

The Durbin Amendment -- named after Senate Majority Whip Dick Durbin, who sponsored the provision -- would require the Fed to establish "reasonable and proportionate" interchange fees for debit-card transactions for large banks. The amendment passed the Senate 64-33 in May and became law as part of the regulatory reform legislation.

TCF's lawsuit declares that the amendment runs afoul of constitutional provisions by giving a competitive advantage to banks with less than $10 billion in assets, which exempts them from the rule, and by instructing the Fed to consider only certain costs pertaining to the authorizing, clearing, and settling of transactions.

"We believe these provisions violate our constitutional rights on three separate grounds: The regulations take our property without just compensation and without due process of law; and they also deny us equal protection under the law," William A. Cooper, CEO of Minnesota-based TCF, said. "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."

In a conference call with investors this morning, Cooper said that retailers would "make a real killing" off the regulations and that the costs would ultimately be passed on to banking customers.

Both banks and retailers, who stand to gain from the new rule, lobbied heavily over the amendment. As much as $20 billion in fees hang in the balance.

Durbin and other amendment supporters had attacked the interchange fees in question as a squeeze on consumers and small businesses. "Higher interchange fees for businesses mean higher costs for retailers and consumers," Durban said in a statement this summer. "American businesses and consumers are getting nickled and dimed by the big banks, who end up making billions from these hidden fees."

Durbin's office did not immediately return a request for comment.

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