The Durbin Game-Changer?

There’s a saying in professional sports regarding critical rulings by officials that affect the outcome of a game — for instance, a game-winning touchdown called back because of a referee’s controversial penalty call. That saying, paraphrased: If the team had commanded the rest of the game, one call wouldn’t have mattered. The lesson: cushion against adversity by doing everything else right.

I think of this in regards to the figurative football being tossed about in the area of governmental regulation of interchange rates—the fees merchants are charged for plastic transactions. COLLOQUY is watching this particular football game because such regulation can impact the richness—and perhaps the very viability—of debit and credit card rewards programs.

The game so far: Early in 2010, Sen. Barney Frank says that potential regulation of interchange fees is off the table in upcoming financial reform legislation.

Game reversal: Sen. Dick Durbin introduces an amendment to the Dodd-Frank financial reform bill subsequently passed by Congress and signed into law on July 21, 2010. The amendment mandates debit-card interchange fee regulation by the Federal Reserve.

Challenge of the official’s call: Wayzata Minnesota-based TCF National Bank, with strong business in debit cards, challenges the constitutionality of such governmental regulation in seeking a preliminary injunction against enforcing the Durbin Amendment, filed Oct. 12, 2010.

Writes PYMNTS.com: “The Durbin interchange fee caps are going to get tossed by the courts, says famed legal scholar and advocate Richard Epstein in an exclusive PYMNTS.com video interview. He’s got a dog in the hunt, though, as one of the lawyers behind the bombshell complaint that TCF filed in Federal District Court in South Dakota.”

“I believe TCF’s challenge has merit,” says consultant Duncan McDonald. “But even if it does, pulling it off will require the bank to jump through numerous hoops, including pressures from its own regulators to back off. By the same token, TCF will garner significant industry legal support.”

Lots of game action so far, and we’re only in the first quarter. Resolution may be a long time in coming.

How will this “referee’s call” affect the outcome of the competition—in this case, the competition for customer loyalty? Ideally, the “call” would have little significant impact. The team that commands the rest of the game can withstand the impact of one call. By developing Total Relationship Banking (serving and rewarding the customers for all aspects of their business, from card use to maintaining accounts to loan activity) financial institutions can withstand the impact of a call that doesn’t go in their favor. Command the rest of the game, and the referees won’t determine whether or not you win.