On Thursday, November 4, 2010, TCF Bank filed papers requesting a preliminary injunction preventing enforcement of the Durbin Amendment. The filing is the first substantive action in the suit filed by TCF to block the Durbin Amendment. The preliminary injunction, as well as the accompanying affidavits, show the financial impact large banks may face if the Durbin Amendment is enforced.
A preliminary injunction request is a request that a court (in this case, the United States District Court, District of South Dakota) take action to stop an activity. In their preliminary injunction request, TCF National Bank requests that the court stop the enforcement of the Durbin Amendment in order to avoid irreparable injury to TCF National Bank from the enforcement of a regulation that (according to TCF) is unconstitutional.
As we discussed previously, TCF claims that the Durbin Amendment is unconstitutional for a number of reasons, including that it arbitrarily and irrationally deprives TCF of its constitutionally-guaranteed property right to recover costs plus a reasonable return on the capital invested in its extensive, debit card operation.
In the preliminary injunction request, TCF provides a number of facts that show how substantial an economic impact the Durbin Amendment would have, and the disproportionate impact the Amendment has on large banks versus smaller banks. For example, TCF points out that the Durbin Amendment exempts about 99 percent of all banks from the legislation. The remaining 60 banks that the amendment will apply to are huge banks including Bank of America (with assets of $2.36 Trillion), JPMorgan & Chase Co. (with assets of $2.01 Trillion) and Citigroup (assets of $1.94 Trillion). TCF, having only $18 Billion of assets, is a relatively “small” big bank.
TCF argues that the Durbin Amendment puts these large banks in a “withering crossfire between the two inescapable commands of the Durbin Amendment. First, the Durbin Amendment’s cost recovery and profit prohibitions result in an over 80 percent reduction in current TCF interchange income. Second, the Durbin Amendment’s exemption for banks with assets under $10 billion, which exempts about 50 percent of the bank branches nationwide, prevents banks regulated by the Durbin Amendment from recovering lost interchange income by charging their own customers a fee for holding or using their debit cards.”
The result, according to TCF National Bank, is that the large banks will be forced to either: (1) increase fees (such as checking account fees), (2) drop debit cards as a product line, or (3) face a substantial drop on return on equity levels.
In particular, TCF estimates that the Durbin Amendment would force TCF to accept about 80% lower debit card revenues than non-regulated banks. On current debit card transactions, for a typical $35 transaction, TCF receives about $0.47 in interchange fees. If the Durbin Amendment is put into affect, TCF will receive about $0.07 in interchange for a $35 debit card transaction.
TCF claims that this significant reduction will drop its return on equity to levels far below those necessary to attract and retain capital.
As a result of this significant and irreparable financial harm, TCF requests that the court prevent enforcement of the Durbin Amendment.
A copy of TCF’s preliminary amendment is shown below.