The Federal Reserve's proposed rule regulating interchange is unconstitutional and would do "irreparable harm to issuers and consumers.''
Those are among the key points that a coalition of credit union and bank groups –including CUNA and NAFCU– make in a friend of the court brief filed today on behalf of TCF National Bank's (TCF) lawsuit against the debit card interchange fee provisions of the Dodd-Frank Act.
The amicus brief contends that previous court cases have concluded that "government price controls that preclude the recovery of costs plus a reasonable return are unconstitutionally confiscatory.'' It further argues that the government's contention that the proposed rule doesn't harm the property interests of card issuers is "startling, and fortunately wrong under settled precedent of both the Supreme Court and the Eighth Circuit.''
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The brief contends that the intent of Congress was to have the Fed issue standards fir assessing the compliance of interchange fees with the requirement that they be "reasonable and proportional,'' not establish price caps.
In addition, because of the harm that the Fed rule would do to consumers, the credit union and bank groups ask the U.S. District Court in South Dakota court to halt the implementation of the provision. Those filing the brief suggested that a basis for that ruling could be that "TCF is likely to prevail on the merits of its constitutional challenge to the statute.''
According 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.
Under the provisions of Dodd-Frank, the Fed must approve a final rule by April 21 and in effect by July 21.
The brief was signed by the American Bankers Association, The Clearing House, Consumer Bankers Association, CUNA, The Financial Services Roundtable, Independent Community Bankers of America, Mid-Size Bank Coalition of America, and NAFCU.
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