WASHINGTON — In a rare show of unity, the leading bank and credit union industry groups filed a joint friend-of-the-court brief on Friday to support TCF Financial Corp.'s lawsuit against implementation of a rule that would limit interchange fees on debit cards.
The groups argued the Federal Reserve Board's proposal to limit such fees, which was required by the Dodd-Frank Act, was too narrowly defined.
"The board's erroneous interpretation of the Durbin Amendment threatens to wreak havoc on this vital component of our nation's economy and to cause substantial structural disruptions to the financial services industry," the brief said.
The brief came from every major bank and credit union group in what could be an unprecedented coordination of efforts. It was signed by The Clearing House Association, American Bankers Association, Consumer Bankers Association, Credit Union National Association, Mid-Size Bank Coalition of America, The Financial Services Roundtable, Independent Community Bankers of America and National Association of Federal Credit Unions.
The Fed issued a proposal in December that would limit interchange fees on debit cards to 12 cents. Bankers have argued the cap is too low and ignores several costs of running a debit system, including fraud prevention.
Although the plan ostensibly applies only to institutions with more than $10 billion of assets, industry executives argue it would put smaller banks at a competitive disadvantage, forcing them to lower fees or potentially face reprisals from retailers.
TCF Financial filed suit against the Fed and Office of the Comptroller of the Currency in October in an attempt to block implementation of the provision, which was authored by Sen. Dick Durbin, D-Ill. The regulators have sought to get the case dismissed in court, but officials from both agencies have warned the Durbin provision could hurt community banks and gut industry profits.
The trade groups referenced a letter Acting Comptroller John Walsh sent to the Fed this week which said the central bank's proposal was too strict.
"Even the acting Comptroller of the Currency — who is a defendant in TCF's case — has told the board that its rule has long-term consequences for the safety and soundness of banks and credit unions of all sizes," the trade groups said in a press release.
In their 47-page brief, the trade associations said the Fed's proposed rule would end up reducing interchange fees by as much as 80%, slicing revenues of banks and credit unions by roughly $12 billion every year.
Doing so, they contend, would end up increasing banking fees and costs for consumers, deprive low-income Americans of access to debit cards, and adversely effect the electronic payments system.