Unless you live in Minnesota, you’ve probably never heard of TCF National Bank. With 440 retail branches and assets of $18 billion, it is a regional player with a relatively small presence on America’s national banking scene. But it has a big story to tell, one that is riveting the industry in the United States.
Let’s rewind time for a moment to the passing of the Dodd-Frank Act last summer, when public hatred for banks was still at fever pitch and punishing them for their reckless behaviour in the run up to the financial crisis seemed to be top priority. The Act introduced a clause, known as the Durbin Amendment, that would reduce the hidden “swipe fees” collected by banks from retailers each time that a consumer uses their debit card. The proposed cut, due to be written into rules next month, would be from an average of 44 cents (27½p) per transaction now, to 12 cents. Retailers complained that swipe fees, which amount to nearly $20 billion a year, were squeezing profits and forcing them to pass on charges to customers. Back then, restricting banks in this way seemed to make perfect sense to regulators and to any members of the public who happened to be paying attention.
Now, however, some lawmakers are beginning to have second thoughts, thanks to a lobbying campaign by debit card companies and banks, which complain that the measure will hit their profits unfairly and force them to introduce other charges — for example, on free cheque accounts — to make up the shortfall. Even smaller banks, exempt from the reduction in swipe fees, are complaining that leaving them with higher fees while imposing a fee reduction on bigger banks will make them uncompetitive.
You might think that the biggest banks with the biggest guns would be leading from the front. But they have refrained from taking any direct action (would it be too cynical to suggest that they don’t want to upset their big retailing clients by being too public about it?). So, instead, it has been left to plucky little TCF to mount a legal challenge and seek a court order declaring the measure unconstitutional and an injunction barring its enforcement.
TCF has risen to the challenge with gusto. Neil Brown, the president and chief operating officer of TCT Financial, the bank’s parent, recently said that the Durbin Amendment was not only unconstitutional but also that it “probably violates the Boy Scouts’ Code of Honour and one of the Ten Commandments”. William Cooper, the group’s chairman and chief executive, said that the law was akin to Congress telling Burger King: “You can only charge for the hamburger and the bun. Ignore all the costs of the overhead and the cooks and the advertising.”
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In its lawsuit, which names Ben Bernanke, the Chairman of the Federal Reserve, as a defendant, TCF complains that the amendment “irrationally, prejudicially and illegally interferes with TCF’s activities” by “imposing unconstitutional limitations on the ability of TCF and similarly situated banks to recover their costs”.
Jason Korstange, a spokesman for TCF, says that the suit, which has the backing of the American Bankers Association and the Community Bankers Association, is characteristic of the bank. “If we see a wrong, we try to right it.”
It’s worth noting, however, that, despite its modest size, TCF happens to be the twelfth-largest issuer of Visa debit cards in America and earns revenue of just over $100 million a year from swipe fees. It claims that the amendment will cost it $80 million a year in lost fee income. Seen through TCF’s eyes, the case boils down to a simple question: whose customers, the banks’ or the retailers’, should be made to pay for debit card fees? At present about 80 per cent of debit card fees are paid by 1 per cent of retailers, including giants such as Wal-Mart. “Do you think it fair that Wal-Mart’s fees should be reduced so they can expand and lead smaller stores to close?” Mr Korstange asks.
Retailers, of course, particularly small business owners, see things differently and rightly argue that existing swipe fees in America are among the highest in the world. The case will be heard in South Dakota on April 4. Whatever the outcome, one thing is clear: whoever the winner is, it won’t be the consumer.
Fighting and fishing
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As Blizzard Entertainment, the PC games developer behind blockbuster hits such as World of Warcraft and Starcraft, celebrates its twentieth anniversary, the company’s founder, chief executive and president Mike Morhaime shows no concern about stagnating PC sales and the rise of new gaming platforms, such as tablets and smartphones. With good reason.
“Blizzard had its best year ever last year,” he says on a trip to New York this week to ring the closing bell at Nasdaq. “World of Warcraft has over 12 million subscribers around the world. Starcraft 2, released last year, was the fastest-selling PC strategy game of all time. We are not seeing our numbers go down; they are increasing.”
Far from representing a threat, mobile platforms present Blizzard with opportunities by drawing in a new type of gamer who may eventually migrate to online PC games. He notes that at least 15 per cent of subscribers to World of Warcraft are women and adds that there are now a good number of non-traditional players who log on to the multiplayer role-playing game set in a fantasy world, not to fight monsters or to complete quests but to pursue more placid interests such as fishing. Yes, fishing.
“It’s a very different experience than levelling up your character and being the first to get to level 85,” Mr Morhaime says. Quite.