The forthcoming regulations limiting the amount of debit card fees banks can collect took a blow on Monday, April 4, 2011. United States District Court Judge Lawrence L. Piersol denied the government’s request to throw out the lawsuit brought by TDF National Bank. The subsidiary of TDF Financial Corporation also had it’s request to issue an immediate injunction against the regulations denied. Judge Piersol allowed the case to continue on the merits as Congress debates the regulations.

A provision of the Dodd-Frank Act known as the Durbin Amendment prohibits banks from collecting debt card fees greater than the cost of actually providing the service. Specifically, the Durbin Amendment targets banks with more than $10 billion dollars in assets, barring them from collecting fees for swipe transactions beyond a certain limit. Merchants remit the fees to the banks in order to be able to use their debit and credit cards for payment processing.

Federal Reserve Chairman Ben Bernanke advised Congress that the Federal Reserve Board is still deliberating after receiving more than 11,000 comments about the debit card fee issue. Bernanke further advised that due to the continued review of these comments, the Fed will miss an April 21 deadline for issuing the regulations, pursuant to the Durbin Amendment. In December, the Fed proposed capping the limit at $0.12 per transaction.

This proposal alarmed TDF National Bank, who claimed that they were going to lose $6,000,000 per month. The bank collects about $8,000,000 per month total from debit card fees. The bank sued the Federal Reserve Board claiming that the regulations were unconstitutionally confiscatory. TDF National Bank first filed this lawsuit requesting a preliminary injunction on November 4, 2010. (1)

The essence of TDF’s claim is that the new regulations put large banks at a deliberate disadvantage. The regulations, the bank argued, force large banks to provide services below-cost while leaving smaller institutions alone. There is also a profit issue at stake for TDF. The bank is the 22nd largest issuer of debit cards in the United States, with over 2.27 million debit cards issued in 2009, and a profit of over $7 billion.