First Credit and Now Debit: Bank Sues Fed Over Forthcoming Debit Card Transaction Fees

Last week, I discussed how credit giants Visa and MasterCard caved into the demands of the U.S. Department of Justice, forcing them to nix policies that disallowed merchants from offering discounts to customers who paid using credit-cards with lower processing fees. A similar story can now be said for new laws imposed on under the Dodd-Frank financial-overhaul bill; but this time, the banks are being targeted for their hefty debit-card processing fees.

Under the new set of regulations, banks with assets of over $10 billion will be required to dramatically lower their debit-card processing fees. The regulation is, once again, aimed at helping merchants who have long complained that the fees are unreasonable and too high. U.S. banks acquire an estimate $20 million a year from these debit-card fees and typically charge merchants anywhere from .75% to 1.25% on each transaction.

TCF Financial Corp., one of the nation's biggest issuers of debit-cards, has filed a lawsuit against the Fed., claiming that the new law unfairly targets big financial institutions and disallows the company it's constitutional right to "recover its costs and a reasonable return on its invested capital." Clearly, this regulation will hurt the consumer banking industry across the board -- even smaller financial institutions who will need to compete against the lower processing fees of the larger financial institutions. It will be interesting to see if TCF can win the lawsuit. If not, banks may force consumers to make up for lost processing fee profits (i.e. requiring consumers to pay a certain monthly fee).