TCF's Debit Interchange Lawsuit Moving Forward

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A judge has denied the government's motion to dismiss TCF Financial Corp.'s lawsuit over debit fee regulation.

Judge Lawrence Piersol of the U.S. District Court for South Dakota also denied TCF's motion for a preliminary injunction against the regulation, according to a court filing after a hearing held on Monday.

The Federal Reserve Board proposed in December to limit debit interchange fees to 12 cents a transaction, compared to the current average of 44 cents. The Fed's rule, prompted by the Durbin amendment to the Dodd-Frank Act, would lead TCF's interchange revenue to drop from $102 million a year to $20 million, the bank has said.

The court has planned a further hearing after the Fed issues its final ruling. However, when that will be is unclear as the Fed has said it would miss its April 21 deadline for issuing final rules. The rule is scheduled to take effect July 21.

Piersol said it was too early to grant the motions since the rules are not finished.

"Question before the court is whether Durbin Amendment legislation and regulations promulgated from it are going to be found constitutional or not. Nothing will be answered with regard to the regulations at this point as we don't know what they are," the court filing said.

In a press release, the Wayzata, Minn., bank noted that the judge raised concerns over the constitutionality of the amendment's exemption of banks with assets of less than $10 billion, and questioned the government's stance that a two-tiered pricing system will eventually lead to a single rate.

Eileen Rooney, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., wrote in a research note Tuesday that "these comments in isolation may omit valid arguments for the defendant's case."

Jeffrey Naimon, a partner at BuckleySandler LLP, said it's too soon to tell if this is a win for the bank.

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