TCF Bank officials were in Washington, D.C. on Wednesday to deliver a lawsuit against the Federal Reserve Board.
TCF, one of the region's major banks, hopes to block the Fed from imposing limits on the fees retailers have to pay banks for debit-card transactions. Legislation pushed by Illinois Senator Dick Durbin directs the Fed to determine fees that are "reasonable and proportional" to the cost of processing debit transactions.
MPR's Tom Crann spoke with TCF CEO Bill Cooper on Wednesday. Cooper is a former chair of the Minnesota Republican Party and has been a long-time critic of government regulation of his industry. He says the regulation is unconstitutional.
Bill Cooper: One of the things that is not reasonable is for a regulatory agency to come up with a regulation that says you can't make a profit. It's similar to this. Say they came up with a rule at Burger King that said, "Gee, all you can charge is the cost of the bun. You can't charge for the hamburger." Burger King would go, "Wait a minute. What about the hamburger, and what about my occupancy costs, the cooks and so on and so forth." If you pass that rule, Burger Kings are going to go out of business.
So, they have regulatory capacity to do things, but there's a lot of history out there that says regulatory agencies can't pass rules about pricing things that doesn't allow you to cover your costs and make a return on your capital, and that's what this does.
Tom Crann:You're saying this would prohibit you from making a profit on these transactions.
Cooper: Not only does it say I can't make a profit, it says I can only do it at a tiny percentage of my costs. It says I must do this at a loss.
Crann: How do you balance that, when it comes to fees, whether it's overdraft fees or these sorts of fees, of setting a fee for your profit versus what is reasonable for customers who may have a choice to go elsewhere, to another bank?
Cooper: The banking industry is hugely competitive. There's 7,000 banks in America, hundreds of thousands of branches. If I charge a fee that isn't competitive with the marketplace, my customer goes somewhere else, and that's what determines the fee.
When the government sticks their nose in this kind of stuff, it ends up either you can't get the service or somebody else pays for it. What the Durbin amendment does is it says Wal-Mart will make $500 million more in profits and my customer, one of those 800,000 people in Minnesota, will pay more. And why is that right?
Crann: Explain a little more about how that will work. You say that Wal-Mart or anyone basically takes a debit card and swipes it at the register. Let us know how that cost, that swipe fee, is built-in and how they would end up making more while the bank would not.
Cooper: The banking industry, over the years, has built up this huge system (to) deliver these cards to the merchant. And what the merchant gets is immediate credit. He doesn't have any risk of default like he would if he took a check. And people can buy things even if they don't have the money in their pocket, and that was kind of the deal.
So the banks spent all the money developing this system, and the merchant pays a percentage of the transaction ... So if you buy something for $100, they would pay the bank 90 cents. And the customer gets that for free. Under this thing, the bank would only be able to collect a little tiny fraction of that. I've still got all the costs, so eventually the customer is going to have to pay that fee.
Crann: You say you're in Washington today to deliver the lawsuit. Is TCF the only bank suing the Fed on this?
Cooper: We are so far, but we've heard from a lot of other banks and banking associations, and so forth that are very interested in it. One of the things that goes on today, this may sound ridiculous, but it's really true.
Business is afraid of government and they're afraid to represent their rights. You go out on a limb when you start suing people like the Federal Reserve. So a lot of businesses are very cautious about it.
Now that we've done it, a lot of other people said, "Gee, you're absolutely right. This is unconstitutional and wrong." And they're looking at what is called filing an amicus brief, which means they file a lawsuit that says, "Yes, we agree with TCF on this."
Crann: And what do you think your chances of winning this are?
Cooper: I'm confident we're going to win it. It is clearly unconstitutional. They can't do this. If they can do that, they can do it to Burger King and McDonald's. I mean, it is clear. There's lots and lots of law that says that the government can't pass a regulation that says you can't make a profit in your business and then go ahead and apply it only to certain businesses, those that are politically in favor. It doesn't work that way, and that's why we have a constitution.
(Interview edited and transcribed by MPR News reporter Madeleine Baran.)