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Michigan Credit Union League Home » Information Services » Publications » News Articles  

TCF Withdraws Interchange Challenge   (Misc News: July 1, 2011)

Just days after the Federal Reserve released its final rule on debit interchange, TCF National Bank moved to voluntarily dismiss its legal challenge to the Federal Reserve's implementation of new interchange regulations.

TCF last October filed suit against the Fed in the U.S. District Court for the District of South Dakota. TCF alleged that it is unconstitutional for the government to require a business to charge below-cost rates that negatively impact business. Click here to read the full story.

The district court in April denied TCF's motion for a preliminary injunction, indicating the issue was not ripe for decision because the Fed had not yet issued its final regulations on debit interchange. It also denied the Fed's motion to dismiss the case. The bank later appealed to the Eighth Circuit Court of Appeals but that court on Wednesday refused TCF's request for a preliminary injunction to halt the debit interchange fee regulations.

The bank asked the district court to dismiss its case at a hearing held early on June 30 in Sioux Falls, S.D. The bank asked for a voluntary dismissal without prejudice, so it would retain the option to re-file the case at a later date.

The Credit Union National Association (CUNA), the Clearing House Association LLC, American Bankers Association, Consumer Bankers Association, The Financial Services Roundtable, Independent Community Bankers of America, Midsize Bank Coalition of America, and the National Association of Federal Credit Unions earlier this year filed a pair of amicus briefs in support of some aspects of TCF's arguments against the interchange statute. The amicus briefs were filed in both courts.

However, CUNA did not support TCF's argument that the interchange rule's small issuer exemption violated the Equal Protection Clause of the U.S. Constitution. The appeals court also dismissed this argument.

The Fed unveiled its final interchange rule on Wednesday. It caps large issuer debit interchange fees at 21 cents, to cover network connectivity, hardware, software and labor costs, as well as costs related to network processing and transaction monitoring. An additional five basis points per transaction may be charged to cover fraud losses. The Fed has also issued a separate proposal that would permit issuers to charge an additional penny per transaction if they meet certain fraud prevention standards.

Debit card issuers with less than $10 billion in assets - which includes all but three of the country's credit unions - are exempt from the direct impact of the cap provisions. Prepaid cards and government-issued cards are also exempted.

The Fed's initial proposal would have set a cap of 12 cents per transaction.

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