Bloomberg News

Bid to Block Debit Card Swipe Cap Denied by Appeals Court

June 29, 2011

(Updates with Fed rate in seventh paragraph.)

June 29 (Bloomberg) -- TCF Financial Corp. failed to persuade a U.S. appeals court to block a federal regulation capping the fees the biggest U.S. banks can get from retailers for processing debit-card transactions.

The St. Louis-based U.S. Court of Appeals today, in a unanimous nine-page ruling, upheld an April decision by U.S. District Judge Lawrence L. Piersol that the lender hadn’t shown it was likely to prevail on its claims the cap is unconstitutional.

The swipe-fee cap, to be set by the Federal Reserve, applies to all U.S. banks with at least $10 billion in assets. The measure, sponsored by U.S. Senator Richard Durbin, an Illinois Democrat, was as an addition to last year’s Dodd-Frank financial overhaul legislation.

“No legal prohibition exists against TCF fully recouping the costs of its debit-card services by assessing customer fees,” the three-judge appeals court panel said today.

Swipe, or interchange, fees are set by Visa Inc. and MasterCard Inc., the biggest electronic-payment networks, which collect the money and remit it to card-issuing member banks.

In a June 21 letter to Piersol, attorneys for the government told the court that the Federal Reserve, at a meeting today, would “consider and vote” on the final regulation.

Rate Set

The board today set the top rate for the largest banks at 21 cents. Retailers previously had been paying an average of 44 cents per transaction. The rate will take effect Oct. 1.

TCF National Bank, a Sioux Falls, South Dakota-based unit of TCF Financial, filed the lawsuit last year, naming as lead defendant U.S. Fed Chairman Ben S. Bernanke and including Vice Chairman Janet Yellen, four Fed governors and Acting Comptroller of the Currency John Walsh.

“We’re disappointed in that ruling, but that doesn’t stop our lawsuit” over the constitutionality of the amendment, Jason Korstange, a TCF Financial spokesman, said in a telephone interview. “We will continue that as planned in South Dakota.”

TCF Financial rose 72 cents to $14.34 at 4:15 p.m. in New York Stock Exchange composite trading.

“We are pleased with today’s ruling,” Charles Miller, a spokesman for the U.S. Justice Department, said in an e-mail.

The lower-court case is TCF National Bank v. Bernanke, 10- cv-04149, U.S. District Court, District of South Dakota (Sioux Falls). The appeal is TCF National Bank v. Bernanke, 11-1805, 8th U.S. Circuit Court of Appeals (St. Louis).

--With assistance from Robert Schmidt and Timothy Homan in Washington. Editors: Fred Strasser, Mary Romano

To contact the reporter on this story: Andrew Harris in Chicago at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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