Two giants dominate
Retailers and small businesses have formed their own group, known as the Merchant Payments Coalition, to lobby for the fee limits. They are less interested in the debate over the constitutional limits to federal power than in the rapid increase in debit card fees, which they argue is the result of anti-competitive practices by the nation's two dominant payment networks, Visa and MasterCard.
Economists at the Federal Reserve have estimated that the total value of debit and credit card swipe fees increased 28 percent between 2002 and 2007. Merchants insist that they have little choice but to accept the terms dictated by Visa and MasterCard, because more than 80 percent of their consumers use cards from one of these two giant networks. Some retail lobbyists have referred to the two payment networks variously as a "cartel" and a "duopoly."
In a legal brief filed in the TCF case, James C. Miller III, a Reagan-era budget director and former chairman of the Federal Trade Commission, argued that regulatory intervention is needed to prevent monopolistic pricing practices by the two giant payment networks. "This is truly a case of market failure: Networks with monopoly power over merchants are setting prices," Miller wrote.
Consumer groups have argued that the cost of debit card fees falls disproportionately on the 25 percent of the population that is either un-banked or relies on cash or checks, as these consumers never receive the benefits of debit card reward programs. The high debit card fees are "a regressive tax on the poor," the U.S. Public Interest Research Group's Mierzwinski said.
Early on, critics dismissed TCF's case as legally groundless. However, as hundreds of pages of friend-of-the-court briefs pour in, a TCF victory is no longer seen as far-fetched by some industry experts.
They point to recent successes by conservative constitutional tacticians in rolling back government regulation. In January, a federal judge in Florida ruled that Congress exceeded its constitutional authority to regulate interstate commerce when it enacted a law that requires most Americans to obtain health insurance, a key provision in the Obama administration's health care overhaul. The case is being appealed.
The odds seem to be shifting
"Six months ago, I really thought [TCF's lawsuit] was a 'Hail Mary' pass," said Jeff Platter, a vice president at Haberfeld Associates, a bank research and marketing firm in Lincoln, Neb. "Now, it's more like a 20-yard pass. But a good defender could still pick it off."
For TCF, Minnesota's third-largest bank by deposits, the stakes are high. The bank collects more than $100 million a year from debit card swipe fees. A 12-cent limit on debit card fees would reduce the bank's annual profits from $120 million to $70.4 million, a 40 percent drop, the bank estimates.
TCF has warned that the Fed's proposal would reduce its return on equity to "far below the amount necessary for TCF to attract and retain capital" and would "compromise its long-term viability."
The limits are scheduled to go into effect in July unless they're blocked in court or in Congress. A bipartisan group of federal lawmakers recently introduced a bill to delay the rules.
It is not known when the South Dakota judge will make a ruling on the TCF injunction request.
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