Credit unions and banks are as important to the economy as utilities and therefore when the Fed regulates them they should be subject to limited controls on prices.
That’s the argument made by coalition of credit unions, banks and other financial services providers in a friend of the court brief filed on behalf of TCF National Bank’s lawsuit against the Durbin Amendment’s mandate that the Fed set limits on debit interchange fees.
The brief argues that credit unions and banks are “sufficiently akin to public utilities’’ to be subject to the protection of the confiscatory-rate doctrine, which allows entities whose prices are regulated by the government to recover fixed and variable costs, plus a reasonable rate of return, to compensate for its investments.
It continues that the disputed issue – “the entitlement and innovation of the electronic payments system – is one that the federal government both supports and expects financial institutions to support.’’
The brief was filed with the U.S. Court of Appeals for the 8th Circuit and seeks to overturn a lower court decision that declined to issue an injunction against the Fed invoking the rule.
The lower court also rejected the government’s request to dismiss the bank’s lawsuit.
In the brief, the financial service providers criticized the lower-court decision that TCF National Bank lacks a sufficient property interest.
As a result of the Durbin Amendment, which was part of the financial overhaul bill passed by Congress last year, the Fed issued a draft rule in December and was supposed to issue a final rule next month but has been delayed in doing so because it is still going through the large number of comments it received on the proposal.
The final rule is supposed to take effect in July.
Acording to the proposed rule, the allowable costs for interchange would be limited to no more than the issuer's allowable costs divided by the number of electronic debit transactions on which the issuer received or charged an interchange transaction fee in the calendar year. Or the issuer could receive debit interchange capped at 12 cents per transaction.
The brief was signed by the American Bankers Association, The Clearing House, Consumer Bankers Association, CUNA, NAFCU, The Financial Services Roundtable, Independent Community Bankers of America and the Mid-Size Bank Coalition of America.