TCF: Durbin Amendment hurts banks

TCF suit warns of 'massive dislocation'

Excerpt:

Last month, TCF Financial Corp. took the bold step of suing its own government regulator, the Federal Reserve Board of Governors and Fed chairman Ben Bernanke, over regulatory changes that would limit debit-card fees.

Now, it is becoming much clearer why TCF is fighting the Fed. Based on new court filings, the bank's entire business model may be at stake.

On Thursday, the Wayzata-based regional bank argued in court documents that it will suffer "massive dislocation" and a "huge loss in revenue" if the Federal Reserve proceeds with plans to limit debit-card transaction fees. The resulting decline in TCF's stock price could "strategically harm TCF" by limiting the bank's ability to raise capital and pursue acquisitions, according to court documents.

TCF has already seen its stock price drop 7 percent since President Obama signed the Dodd-Frank Act in late July, largely because of investor fears that new fee limits will erode TCF's profitability. By comparison, the S&P 400 Mid-Cap Regional Bank index rose 3.8 percent over the same period.

The bank, Minnesota's third-largest by deposits, urged a federal judge to issue a preliminary injunction preventing the Federal Reserve from enforcing a controversial provision of the Dodd-Frank financial reforms, known as the Durbin Amendment, that would severely limit how much banks with assets of $10 billion or more can charge retailers each time a shopper swipes a debit card at the register. These charges, known as interchange fees, average about 1 to 2 percent of every transaction and amount to tens of billions of dollars a year for banks.

Comment: My own take is that banks can weather that provision. But other CC fees will rise or rewards will decline.