Wednesday, October 13, 2010

TCF Lawsuit is "Nonsense" Says Way Too High

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TCF’s Suit Is ‘Nonsense,” Anti-Interchange Crusader Mitch Goldstone Says
(Digital Transactions)

From Way Too High

October 14, 2010

(October 14, 2010) TCF National Bank’s federal lawsuit against the controls on debit card interchange contained in the Dodd-Frank financial reform law draws scant sympathy from retailers who have been battling against card interchange, including a merchant and entrepreneur who has been leading a crusade against the pricing mechanism for years. “It’s nonsense,” says Mitch Goldstone, president and chief executive of, Irvine, Calif. “It’s just another distraction.”  Goldstone argues the suit, which names the Federal Reserve as defendant and claims that the law’s provision for the Fed to control debit card interchange is unconstitutional, represents an effort by banks and the card networks to preserve status-quo interchange pricing for as long as possible. “It’s just a big game to them,” he says. “They’re just trying to run out the clock. Every day Visa and the banks get away without addressing interchange, they make another $120 million.” TCF filed its suit on Tuesday (Digital Transactions News, Oct. 12),
Goldstone’s estimate of the daily tab for interchange includes both credit and debit card fees, he says. Debit card interchange alone is estimated to represent about $15 billion in annual income for financial institutions. TCF, which is a prominent debit card issuer but has no credit card portfolio, estimates Dodd-Frank will cut its annual interchange income from $102 million to $20 million. While Visa and MasterCard set interchange rates, interchange income flows to card-issuing banks. It is paid by merchant acquirers, which then pass the cost on to merchants as part of the discount fee merchants pay on each transaction.
READ ARTICLE TCF’s Suit Is ‘Nonsense,” Anti-Interchange Crusader Says
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Durbin Response to TCF's Lawsuit Challenging Constitutionality of Interchange Law

Durbin Statement on TCF's Court Challenge of Interchange Law

WASHINGTON, D.C.—(ENEWSPF)—October 12, 2010.  Assistant Senate Majority Leader Dick Durbin (D-IL) released the following statement today after Minnesota-based TCF National Bank filed a lawsuit challenging the constitutionality of a Durbin-authored law regarding interchange fees. The bipartisan language passed as part of the Wall Street reform act, requires the Federal Reserve to determine if the current interchange fee structure is both “reasonable and proportional” to the real cost of processing a debit card transaction and allows small businesses to offer discounts to consumers when they use cash, checks or debit cards.

“TCF’s complaint not only fundamentally misunderstands the law regarding interchange fees, but it also ignores the facts,” Durbin said. “The law in no way addresses the fees TCF, or any other bank, can charge and it does not set interchange rates. Our language simply ensures that debit interchange fees charged to retailers by the card networks – not the banks -- are ‘reasonable and proportional’ to the cost of processing transactions and provides competition in an area of the market where there’s none.
Congress approved this language by a wide bipartisan margin in reaction to the frustrations of millions of merchants and consumers who were getting nickled and dimed by the anticompetitive interchange system set up by big banks and credit card companies – including TCF. I look forward to this provision’s day in court and am confident that our language will be found to be fair and Constitutional.”
The Durbin amendment was passed by the Senate 64-33 in May of this year during the Senate’s consideration of the Wall Street reform bill. The amendment was agreed to after Congress held six hearings on the issue of interchange fees and their effect on consumers. A modified version of the Durbin amendment was later agreed to by House and Senate negotiators and included in the final bill.
Last week, the Department of Justice (DOJ) concluded a multiple year investigation into the issuance of interchange fees by credit card giants Visa and MasterCard and concluded that the rules surrounding interchange fees exclude competition and are unfair to consumers and merchants alike. DOJ, Visa and MasterCard reached a settlement that would require the two companies to allow merchants to offer discounts, incentives, and information to consumers to encourage the use of payment methods that are less costly. Durbin’s statement on the settlement can be found here:
Interchange fees are supposedly charged by Visa and MasterCard in order to cover the cost of processing a credit or debit card transaction. These fees continue to rise even though processing costs have decreased.  Nearly $50 billion in interchange fees were charged by credit and debit card networks in 2008 – coming out of the bottom lines of small businesses, charities and government balance sheets. Of these fees, 80 percent went to just ten large banks.
A summary of the Durbin interchange law is below:
Summary of the Durbin Interchange Amendment to the Wall Street Reform Act
·         The Durbin amendment would bring reasonable regulation to the $20 billion per year debit interchange fee system.  Interchange fees are received by the card-issuing bank in a debit card transaction.  However, Visa and MasterCard, which control 80% of the debit market, set the debit interchange fee rates that apply to all banks within their networks.  Every bank gets the same interchange fee rate, regardless of how efficiently a bank conducts debit transactions.  Visa and MasterCard do not allow banks to compete with one another or negotiate with merchants over interchange rates, and there is no constraint on Visa and MasterCard’s ability to fix the rates at unreasonable levels.  This system is effectively an unregulated $20 billion per year transfer of wealth from merchants and their customers to card-issuing banks.
·         The amendment will require that for transactions involving debit cards issued by banks with assets over $10 billion, any interchange fee charged on the transaction must be reasonable and proportional to the cost incurred in processing the transaction. Visa and MasterCard currently charge debit interchange fees of around 1-2% of the transaction amount.  These fees are far higher than the actual cost of processing debit transactions, and they mean that small businesses and merchants always get shortchanged when they accept a debit card for a sale.
·         The amendment will permit card-issuing banks to receive debit interchange fee adjustments to cover reasonably necessary fraud prevention costs.  However, as opposed to the current interchange system where banks receive a guaranteed level of interchange revenue no matter how effectively they deal with fraud, the amendment will require banks to demonstrate that they have met fraud-prevention standards and taken effective steps to reduce fraud in order to receive an issuer-specific interchange adjustment that will cover their necessary costs.
·         The amendment exempts government-administered debit cards and reloadable prepaid cards from debit interchange regulation so long as abusive cardholder fees are not charged.  The amendment would rescind this exemption for government-administered cards and reloadable prepaid cards if consumers using these cards are charged overdraft fees or fees for their first monthly ATM withdrawal by the card-issuing banks.
·         The amendment allows merchants to offer customers discounts for use of cash, checks and debit cards, and to set a $10 minimum for credit card transactions, without penalty from card networks.   These provisions will enable small businesses to bring their interchange costs under control and to pass savings on to consumers in the form of discounts.
·         The amendment prevents card networks from requiring that their debit cards be transacted exclusively on one debit network.  There are a number of PIN debit networks that merchants can use to conduct PIN debit transactions, and until recently most PIN debit cards were able to be used on multiple PIN networks.  This fostered price competition between the PIN networks.  Recently, however, price competition has diminished and PIN debit fees have gone up because large networks like Visa have increasingly required banks to sign exclusive agreements under which they become the sole PIN network whose logo appears on the banks’ cards.   The amendment would enhance competition by directing the Fed to issue regulations providing that a card network cannot limit a debit card to only be allowed to run on one exclusive network.
·         Nothing in the amendment would enable discrimination against debit or credit cards on the basis of the bank that issued the card.

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TCF Bank Files Lawsuit Claiming Durbin Amendment is Unconstitutional

TCF Bank Files Lawsuit Challenging The Durbin Amendment of the Dodd-Frank Act

-- Complaint Calls Amendment Unconstitutional --
WAYZATA, Minn.--(BUSINESS WIRE)--TCF National Bank (“TCF”), a subsidiary of TCF Financial Corporation (NYSE:TCB), announced that today it is filing a lawsuit challenging the constitutionality of the Durbin Amendment (“the Amendment”). Congress included this Amendment, without hearings, in the Wall Street Reform and Consumer Financial Protection Act of 2010, also known as the Dodd-Frank Act.
“It is unprecedented for Congress, or any regulatory agency, to mandate a fee charged in the free market that not only denies a reasonable rate of return on investment, but actually requires the rate to be lower than the incremental cost of providing the service”
The Durbin Amendment orders the Federal Reserve Board to enact regulations that strictly limit the amount of interchange fees the bank can charge retailers on debit card transactions. The Amendment directs the Federal Reserve Board to measure the processing costs of authorizing, clearing and settling debit card transactions and then to adopt regulations setting debit card interchange rates based on those costs alone. In total, these processing costs amount to only a fraction of the total costs required to manage the debit card system and deliver the product. The Amendment also explicitly mandates that the Federal Reserve Board ignore other costs incurred by banks associated with the creation, administration and improvement of their extensive, highly efficient, debit card systems. Finally, the Amendment applies only to banks like TCF with $10 billion or more in assets, which constitutes just one percent of banks in the country, and exempts all others. The thousands of banks exempted from the Amendment will be free to continue to charge retailers the current debit card interchange rate and recover all their cost plus a profit. This will result in an irrational competitive disadvantage for banks like TCF that are subject to the new regulations.
“It is unprecedented for Congress, or any regulatory agency, to mandate a fee charged in the free market that not only denies a reasonable rate of return on investment, but actually requires the rate to be lower than the incremental cost of providing the service,” said William A. Cooper, Chairman and Chief Executive Officer of TCF Financial Corporation. “Furthermore, the Amendment affects only one percent of the nation’s banks, giving thousands of unaffected banks an unfair competitive advantage.”
“We believe these provisions violate our Constitutional rights on three separate grounds: the regulations take our property without just compensation and without Due Process of Law; and they also deny us Equal Protection under the law,” Cooper said. “The statute makes no more sense than regulating the price of a Burger King® hamburger solely to the costs of the meat and the bun. To stay in business, Burger King has to sell burgers at prices that cover more than those costs; it also has to cover costs such as paying an employee to make the hamburger and another employee to serve it, the cost of the building and maintenance, as well as the costs incurred to advertise and promote the product. Under the Durbin Amendment, TCF only gets to recover the cost of the bun!”
“The Durbin Amendment blatantly confiscates TCF’s assets by denying the bank an opportunity to earn a fair rate of return on its assets. The Amendment also engages in invidious discrimination against the bank by making it impossible for it to compete on even ground with the thousands of banks that are exempted from the Amendment,” said Richard A. Epstein, a constitutional law scholar who, along with Timothy D. Kelly of Kelly & Berens P.A., has served as counsel to TCF on this case. “Well-established Supreme Court case law prohibits Congressional rate regulation that does not allow the bank to attract and retain the capital necessary to run its debit card business,” Epstein added.
Congress has never enacted any regulatory statute like the Durbin Amendment before: one that requires an administrative agency to order sellers of a product or service to cut their rates to a rate far below their actual cost of delivering the product or service, and then exempts ninety-nine percent of the sellers from the new confiscatory rate. Moreover, the Durbin Amendment was a last minute addition to the Dodd-Frank Act’s comprehensive overhaul of the financial services industry. Neither the Senate nor the House held any hearings on the provision, which would have allowed for public analysis of its most questionable provisions. Few people in Congress, therefore, grasped its revolutionary implications and its punitive impact on the few banks subject to its restrictions.
TCF will host a teleconference to elaborate further on the reasons it chose to file this suit, at which time it will further explain the legal basis for the complaint. Media are welcome to attend in a listen-only mode. The teleconference will occur today, Tuesday, October 12, 2010 at 11:00 a.m. Eastern Time. If you would like to listen to TCF's live teleconference, please dial (877) 245-6230. To listen to the replay of TCF's teleconference, please dial (800) 642-1687 and enter conference ID #17047486. Replay begins two hours after the call is completed and will be available through Wednesday, October 20th.
TCF's teleconference will also be webcast live on the Investor Relations section of TCF's website, In addition, the teleconference will be archived for replay on the website.
TCF National Bank is a subsidiary of TCF Financial Corporation, a Wayzata, Minnesota-based bank holding company with $18 billion in total assets. The company has 441 banking offices in Minnesota, Illinois, Michigan, Colorado, Wisconsin, Indiana, Arizona and South Dakota, providing retail and commercial banking services. TCF also conducts commercial leasing and equipment finance business in all 50 states and commercial inventory finance business in the U.S. and Canada. For more information about TCF, please visit


Media Contacts:
Stanton Communications, Inc.
Angela Ruggiero, 212-616-3601
Patrick Brady, 202-223-4933
Investor Contact:
TCF Financial Corporation
Jason Korstange, 952-745-2755

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Electronic Payments Coalition Statement on TCF Bank Lawsuit Challenging Durbin Amendment

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WASHINGTONOct. 12 /PRNewswire/ -- From the very beginning, the interchange battle has been a blatant attempt by giant retailers to take advantage of an unstable economic and political environment to increase their own profits at the expense of their customers.  Unfortunately, it is the millions of American debit cardholders who will bear the brunt of the retailers' windfall that will be realized by the Durbin amendment as written in the Dodd-Frank Act.  The lawsuit filed today underscores this, and rightly notes that this issue was a political one, rushed through without a single hearing, study or congressional review of its economic impact. 

About Electronic Payments Coalition
The Electronic Payments Coalition is dedicated to protecting consumer value, choice, and competition in electronic payments systems. The coalition is a broad-based group of payment card networks, financial services companies, and financial services trade associations whose primary goal is to educate policy-makers, consumers, and the media about the value of electronic payments systems — including economic growth, convenience, speed, reliability, and security — and to ensure the continued growth of global commerce by promoting consumer choice and the stability of the vast payment networks that connect millions of consumers with millions of retailers each and every day.
SOURCE Electronic Payments Coalition

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Online Banking's Advanced Persistent Threat

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The advanced persistent threat and security of online banking

DATE: 12 Oct 2010

In this video, U.S. Assistant Attorney Erez Liebermann discusses how law enforcement is addressing the advanced persistent threat within the financial industry, as well as the security of online banking. He talks about the case of TJX and Heartland hacker Albert Gonzalez, and also provides advice on what companies should do after a data security breach, including when to call law enforcement.
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