It’s not the Little Big Horn but It Could Be Big, Nevertheless

Sioux Fall, South Dakota is about a thousand miles from the U.S. Capitol, but a battle is shaping up there today which could affect implementation of the Durbin Interchange Amendment and the Federal Reserve’s proposed rules governing debit card interchange fees.

Today the government and TCF National Bank are all lawyered up in Judge Lawrence Piersol’s courtroom debating whether Congress has the right to impose price caps on banks that issue debit cards. TCF says the law is unconstitutional. The government says TCF’s claim has no merit.

At stake is the more than $16 billion that banks collect each year, according to the Fed, in what merchants call “swipe fees.”  Swipe fees is term that could have only been coined for the retail industry by a modern day Don Draper. It is a term that denotes a brief, fleeting, ephemeral action (the swipe), as delicate as gossamer—but which costs merchants 16 billion large every year (the fees). Sixteen billion is how deeply in debt the state of California was in 2008. Sixteen billion is what Southwestern Bell paid for AT&T in 2005. It’s what Microsoft earned in 2010.

Swipe fees understates the value of card acceptance and overstates the burden to merchants, skewing the argument and manipulating public opinion. As such it is positively brilliant.

Meanwhile back at the Capitol, Congress is considering delaying the implementation of the Durbin Amendment. While the Fed lawyers are busy in Judge Piersol’s courtroom, Fed analysts continue to comb through 11,000 comment letters received in response to the agency’s proposed Durbin rules.

Smart money says there’ll be a delay in implementing the Durbin rules. TCF’s Battle of Sioux Falls? A toss-up. But I wouldn’t put $16 billion on the outcome of either battle.

It’s not the Little Big Horn but It Could Be Big, Nevertheless