According to Bloomberg, Minnesota based TCF National Bank has filed an appeal with the U.S. 8th Circuit Court of Appeals asking the court to declare the Durbin Amendment unconstitutional.
TCF's suit is the latest in a series of attacks on the Dodd Frank bill's attempt to cap debit card fees. The Durbin Amendment has powerful enemies (Jamie Dimon, CEO of JP Morgan Chase has referred to the Durbin Amendment as price fixing.) Both the House and the Senate have versions of bills to delay implementation of the Durbin Amendment and reportedly Barney Frank had agreed to support HR 1081 which would delay implementation of the Durbin Amendment for two years pending more studies of its consequences.
The issue here will sound very familiar to those of us who have just suffered through the loan originator compensation rules. The Federal Reserve Rule on debit card interchange fees will cap the interchange fee per debit card transaction at 12 cents, regardless of the size of the transaction. As a result, small banks are likely to limit the size of debit card transactions or cut off access to free checking.
TCF had filed a suit against Fed Chair Ben Bernanke in an attempt to stop implementation of the bill, but on April 4, U.S. District Judge Lawrence Piersol ruled against TCF and denied the bank's motion to delay implementation of the rule. At the same time, Piersol also denied the government's motion to dismiss the suit completely.
On Monday, May 2, TCF was back in court appealing Piersol's decision. The TCF attorneys argued in their brief, "We are talking about the establishment of a confiscatory rate regime fully 15 years after banks began their debit businesses." TCF is asking the court to rule the Durbin Amendment unconstitutional.
If TCF were to prevail in this case, the precedent would be amazing. Banks are upset about the Durbin amendment because it caps the fees that they as private businesses can charge for debit cards. If that is found to be unconstitutional, couldn't the same legal logic be applied to the Merkley amendment which caps loan origination fees at 3%? If the government does not have the constitutional right to dictate what a private business can charge for its services, couldn't this impact also on the loan origination compensation rules forced on all of us by the Federal Reserve last month? Maybe the FDIC does not have a constitutional right to set up underwriting standards, or to dictate what types of mortgage products individual businesses can access and sell.
Most importantly, if one part of the massive Dodd Frank bill is ruled unconstitutional, the ripple effect might actually bring down the entire bill. Although there are both House and Senate bills to repeal Dodd Frank, a ruling from a court striking down at least parts of the bill would impact greatly on the future of the law as a whole.
We will be watching to see what happens.
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