Minnesota leads charge against Durbin amendment on debit card fees in Dodd-Frank bill

Minnesota may become the first state to move on a groundswell of opposition from banks and communities to an amendment on debit card fees in the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Durbin amendment, proposed by Illinois Sen. Dick Durbin, applies to debit card issuers with more than $10 million in assets and imposes debit card “swipe” fees proportional to the cost of processing the transaction.

“It’s really going to set in when people realize what they’ve lost,” said Kim Crockett, the president and general counsel of the Minnesota Free Market Institute. “People don’t know what the Durbin amendment is. They’re going to be mad at their banks and they’re not going to connect all the dots.”

Some believe the sentiment in Minnesota will spread to other states once consumers see the fees increase their cost of banking or eliminate benefits such as free checking.

John Berlau, the director for the Center of Investors and Entrepreneurs at the Competitive Enterprise Institute, agrees that effects on consumers will sneak up on states.

“I think we’re going to see a surprise, like with the health-care decisions,” he said.

TCF Bank of Minnesota is involved in a lawsuit challenging the constitutionality of the amendment. A decision is expected sometime in April.

“Once the ruling came out in December, people came to realize this could actually go into effect,” said Richard Epstein, a professor at New York University professor who has served as counsel to TCF on the case. “The tension slowly began building. We feel that we have a very strong constitutional case against it.”

Epstein said support for the lawsuit is growing.

“The bankers are coming out of the woodwork,”” he said. “Every trade association in this town has filed something. We used to think that no one would join us. It’s created tremendous political pressure.”

Sen. Rand Paul, Kentucky Republican, and Sen. John Tester, Montana Democrat, both told the Credit Union National Association (CUNA) about their plans to repeal the Durbin Amendment at CUNA’s Governmental Affairs Conference on March 3, according to the National Association of Convenience Stores, an international trade association.

Durbin proposed the amendment to help small businesses and merchants who get shortchanged by debit card processing fees when they accept a debit card as payment, according to his Senate website. He says the amendment prevents card networks such as Visa and MasterCard from punishing sellers who offer discounts to customers.