Appeals Court Is Last Chance To Block Fed’s Debit Rule

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ST. LOUIS – Lawyers for Minnesota’s TCF Bank will tell a federal appeals court this morning that the Fed’s proposed cap on debit fees amounts to an unconstitutional “taking” of its assets, in a last-ditch effort by banks and credit unions to block the Fed’s final rule.

The $18 billion bank, formerly Twin Cities Financial, will ask the court in this morning’s oral arguments to overturn a lower court ruling and order a preliminary injunction to block the Fed from passing the final rule. TCF says the Fed’s December proposal would cut its $100 million a year in debit fees by as much as two-thirds.

Still, the court, the Eighth Circuit Court of Appeals, is not expected to issue its ruling fast enough to stop the Fed from approving a final rule, expected any day now. The Fed was cleared to pass the final rule after Congress last week declined to pass a credit union- and bank-backed delay in the rule.

The hearing originally was scheduled for the court’s St. Paul courtroom but has been moved to St. Louis to accommodate an overflow crowd.

Even as the appeals court deliberates, credit unions and banks are already studying a potential legal challenge to a final rule. Eric Richard, general counsel for CUNA, which is backing the TCF challenge, said he believes a legal challenge would be more effective after the Fed passes a final rule. “That’s why you really have to wait to see what the final rule says,” he told Credit Union Journal yesterday.

Several sources said they think the Fed’s rule will be ripe for a challenge based on the Administrative Procedures Act, which requires regulatory agencies to follow certain procedures before enacting final rules. Among the questions are whether the language of the debit fees provision requires the Fed to enact a strict cap, as proposed, or simply restrictions allowing credit unions and banks to recapture “reasonable and proportional” costs.

The stakes in the fight are enormous, with credit unions and banks earning an estimated $20.5 billion in debit fees last year, $2.6 billion of it by credit unions.


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