Smart Borrower Blog

New Debit Card Fee Regulations Spur Lawsuit

Apr 6th, 2011 @ 8:18 AM by Amber Nelson

Federal Reserve Chairman Ben Bernanke and the Fed’s Board of Governors are being sued over new debit card fee regulations passed by Congress. TCF National Bank, backed in Minnesota, filed the suit claiming the rules, which limit the amount of money banks can charge for card transactions, are unconstitutional.

“The purpose of sound regulation is to introduce or advance competition, not to destroy it,” TCF’s lawyers wrote in a court filing, as quoted in an article on

The rule, called the Durbin Amendment, is part of the Frank-Dodd financial overhaul law. It dramatically reduces the fee a bank can charge retailers for using the card-swiping service. Currently, banks charge 1.14 percent of the purchase price, which averages 44 cents. The law would cut that to between 7 and 17 cents per transaction.

Retailers have typically passed on those fees to customers, making higher prices for everyone, not just those who use debit cards. The banks are also playing hot potato, as Visa and MasterCard are actually responsible for the setting the swipe fees, not the banks themselves.

“We’re going to lose $6 million per month,” Timothy D. Kelly, a TCF National Bank lawyer. “We can’t recover it from the government, and we can’t recover it from the retailers.”

USA Today published an op-ed piece laying out its in-favor point of view of the new government rules, though suggest the desired results, protecting consumers against higher prices, could have been achieved in a better way.

“The obvious, and counter-intuitively pro-consumer, solution would have been to allow retailers to pass on the swipe fees to their customers directly as line items on their bills. Once consumers saw the fees, instead of having them hidden in the cost of what they buy, they would rebel against them.

They would demand a cheap and efficient way to spend their money without having to support a $48 billion industry of middlemen. In so doing, they would both drive down prices and create what doesn’t exist now — an actual marketplace for credit and debit card branding.”

It’s hard to say if that would have caused a mass scale consumer rebellion, or just encouraged a percentage of buyers to use other payment methods. In any case, the lawsuit is moving forward and the matter is now in the court’s hands.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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