Fed Will Face Bank Lawsuit Over Credit Card Fees (MA, V)

Federal Reserve Chairman Ben Bernanke has been unsuccessful in his effort to end a lawsuit broght by TCF National Bank which challenges the legality of forthcoming rules designed to limit the fees that the largest U.S. banks can charge merchants for debit card transactions. U.S. District Judge Lawrence L. Piersol denied the government's request to throw out the case. According to Bloomberg, he also rejected the bank's request to block the regulations and allowed the case to move forward while Congress debates the issue. TCF sued The Fed in October in an effort to strike down the legislation, which was appended to the Dodd-Frank financial regulation overhaul bill. The provision, known as the Durbin amendment, prevents banks with more than $10 billion in assets from charging retailers more money per debit-card transaction than the actual cost of providing that service. Visa V and MasterCard MA set these so-called interchange fees, and then pass a portion of the proceeds to the card-issuing banks. The Fed has proposed that these fees be limited to $0.12 per transaction, which compares to the current formula, which averages 1.14% of the purchase price, or $0.44. The current system of high interchange fees is extremely profitable for the banks, while burdensome for retailers. According to the Fed, debit-card interchange exceeded $16 billion in 2009. “We're going to lose $6 million per month,” Timothy D. Kelly, a TCF National Bank lawyer, told the judge yesterday. “We can't recover it from the government, and we can't recover it from the retailers." TCF currently brings in about $8 million per month in fees according to Kelly. The Congress is currently debating the proposals presented by the Fed to limit interchange fees. In front of the Judge, the U.S. government had asked that the case be thrown out because the rules had not even been enacted yet, and because Congress has ample authority to regulate banks.