Bank sues Federal Reserve to stop part of Wall Street overhaul

A Minnesota-based bank with $18 billion in assets is asking a federal court to overturn a central provision of the financial overhaul law.

TCF National Bank filed a lawsuit against the Federal Reserve on Tuesday challenging the constitutionality of the “interchange fee” provision, a measure sponsored by Senate Majority Whip Dick Durbin (D-Ill.) that aims to limit the fees merchants pay to debit card issuers.

The lawsuit is one of the first major legal challenges to the financial overhaul law enacted in July by President Obama.

“We have filed this lawsuit because we believe this law is unconstitutional,” said William Cooper, chairman and chief executive officer of TCF Financial Corporation, the bank holding company for TCF National Bank. 

The bank said in the lawsuit that the provision “irrationally, prejudicially and illegally” interferes with the company’s business. The lawsuit, filed in U.S. District Court in South Dakota, seeks a preliminary injunction.

The law requires the Federal Reserve to issue rules requiring that the interchange rates are “reasonable” and “proportional” relative to the processing costs. Cooper said the provision “limits the amount of revenue that banks can collect.”

Durbin said he is confident his provision will stand up in court.

“The law in no way addresses the fees TCF, or any other bank, can charge and it does not set interchange rates,” Durbin said in a statement. “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.”

Durbin’s amendment was added during Senate floor debate and sparked a major lobbying fight between merchants and retailers and banks and credit unions. Merchant and retail lobbying groups had long sought legislation to rein in debit card fees. 

The financial law limited the provision to banks with $10 billion or more in assets. Cooper said the $10 billion threshold is a “political number.”

Durbin said the provision protects consumers.

“Congress approved this language by a wide bipartisan margin in 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. I look forward to this provision’s day in court,” he said.