DAVID S. EVANS: Hi, this is David Evans. I’m here today with Bill Cooper from TCF. He’s the CEO there. Bill, thanks a lot for joining us.
WILLIAM COOPER: You’re welcome.
EVANS: Hey, Bill, could you tell us about TCF, how big you are, what makes you different from other banks? And putting Durbin aside, which is the subject I really want to talk about, how you guys are doing?
COOPER: Well TCF is $18 billion, makes us about, I think, the 38th largest bank in the country. We were affected by the recession like everybody else, but we’ve had 62 consecutive quarters of earning, so we never had the big problems, because we never engaged in a lot of the activities that created problems for a lot of the other banks.
EVANS: That sounds great. And when did you become the CEO of TCF?
COOPER: 1985. It was a mutual, and we took it public in ’86.
EVANS: And what did you do before that?
COOPER: Well, actually I started by career off as a CPA. But before that, I worked at Huntington Bank in Columbus, Ohio.
EVANS: So let’s talk a little bit about Durbin. Congress told the Fed to limit the amount of money that banks could earn from debit interchange fees. Some people in the industry are predicting that they could wipe out anywhere from 70 percent to 90 percent of revenues. Not everyone, but some people are. You’ve sued to stop this. Why?
COOPER: We believe that what they did is unconstitutional. There’s a lot of law that goes way back in terms of the inability of regulatory agencies to tell companies that they have to charge a price that doesn’t allow them to make a profit. The Durbin Amendment specifically says that banks can only recover a portion of their costs — the incremental costs.
Like I say, there’s a lot of law going back and public utilities, insurance, etc., that says that’s unconstitutional.
EVANS: Now as far as I know, the other banks haven’t sued yet, or at least there hasn’t been much publicity if they have. And a lot of the ones that I talked to seemed reconciled to this loss of revenue.
So here’s a multiple choice question. Do your fellow CEOs have stiff upper lips? Are they ostriches? Or are they deers in the headlights?
COOPER: Well, it depends on the circumstance. This only applies to 60 banks, which is banks over $10 billion. That’s 60 banks in America. The 10 largest banks generally are in what they call the merchant banking business. In other words, they’re dealing with the merchants on interchange, and they’re worried about offending the merchants and that connection in terms of suing. A lot of banks think that there’s going to be a legislative fix to that, which is possible and maybe even likely.
But I do believe that there will be some Amicus Briefs that are filed by other banks that are supportive of this issue.
EVANS: Your lawsuit says that the big banks have flexibility to earn the loss revenues back by increasing prices on some of the other products they offer, and that the small banks, the ones that you point out that are less than $10 billion in assets, those guys are exempt. So as I understand the argument in your case, you guys are squeezed out. Can’t you just raise your prices, too? And aren’t the small banks really too small to really matter all that much?
COOPER: Well, this applies to 60 banks out of about 7,700. Those 60 banks represent about half the branches in America. So basically the issue is whether one half of the banking system can raise a price when the other half doesn’t. Which is the other aspect that makes this thing unconstitutional in connection with due process. It applies only to some institutions.
And when you look at why it came to $10 billion, it’s going to be interesting to see the government answer this. But the reason why they ended up on 10 billion, they simply kept raising that level until they could get the political votes to get the thing done. There’s not logical regulatory reason to use that number, other than getting votes in the Senate to get it passed.
EVANS: I don’t suppose you’ve had a chance to talk to Senator Durbin to let him know what his bill is likely going to do to you and the other banks in your situation?
COOPER: I have never discussed this with Senator Durbin. I’ve talked to a lot of other political people but never with him.
EVANS: Congress imposed one of the most sweeping price regulations in the banking industry in the form of Durbin. It’s really quite extensive. It got a lot of Republican support in the Senate. Why was that?
COOPER: Well, what happened back then was the whole Dodd-Frank thing was 2,000 pages, this was part of it. There were never any hearings on this. There was never any regulatory bulletin about why it made sense and so forth. And basically, as a lot of things that go through Congress, most Senators didn’t know what tie was. They didn’t understand the ramifications of it. And it was mis-described in connection with the politics of it. And so I think a whole bunch of people that voted for this did not know what they were voting for.
EVANS: So I’m sure you guys kind of keep your ears to what’s happening in DC, and quite a bit has happened in the political world since you filed the lawsuit. What’s the chances, do you think, that Congress will revisit this and give you some relief if the courts don’t, or maybe even before the courts have to opine on this?
COOPER: I think there’s various avenues of relief that might be possible. The Federal Reserve might say, look it, we can’t do it this way. And it’s pretty complicated, if you think about it, of having one charge for one bank, and another charge for another. There’s some significant issues in that. It may be a real problem for Visa.
We have heard that there’s a lot of inclination to change a lot of things about Dodd-Frank and the Durbin Amendment. Whether that will happen or not, I don’t know. It’s another fight in Congress between the retailers and the bankers.
One of the things you’ve got to remember about this, what it really was, was the result of a huge lobbying effort where the retailers spent a lot of money on Congress in connection with giving them a pass. There’s a lot of people in Congress that would not like to go through that process again.
It’s interesting, by the way, Durbin just had a big fund raiser put on by who? The retailers.
EVANS: How about that?
COOPER: How about that.
EVANS: So you guys have asked for a preliminary injunction, basically a court ruling to tell the Feds to stop for now until the court can consider the case. Any idea from your lawyers on when the court’s likely to decide that?
COOPER: We had a preliminary hearing on it. The Justice Department basically defends the Fed on this. They asked to have the hearing in April, after the Fed issues its preliminary results. The court said no, and we have currently a January date, because basically the court agreed with us that it isn’t what the Fed eventually does here, it’s what the law says. There is no timing thing in connection with the law is what the law is, and it’s either unconstitutional or not.
EVANS: So you guys get to go before the judge sometime in January, and then the judge will have a little bit of time after that to think about what it’s going to decide, what the court’s going to decide?
COOPER: That makes sense, although you never know what’s going to happen in a court room. But that is the way it stands right now, yes.
EVANS: What’s the reaction been from your fellow bankers to your lawsuit?
COOPER: Well, there’s been a lot of yay, go. And one of the aspects of that is they’re very happy that somebody’s doing it so that they don’t have to, I guess would be the best way to put it. Overwhelmingly, people think this is unfair.
And when you think about it, there was even an editorial in the Star Tribune here in Minneapolis, which is pretty a left-leaning newspaper, and we’ve been at odds with them on a lot of things, saying how unfair it would be to pass this law. It basically said Wal-Mart makes 500 million in profits, and my customer would pay a fee. That’s not the way these things normally work. It’s like the credit card bill they passed that says, gee, the banks should only charge their customer a certain amount. Under this law it says you can’t charge the merchants a certain amount, and you’re supposed to pass the cost on to your consumer. That’s pretty unusual and unpalatable.
EVANS: So what’s your prediction on whether the merchants are actually going to pass along any of the cost savings to the consumer?
COOPER: Well, it’s interesting. It was in the bill originally that they must pass it along, and they took it out. And they did a similar kind of a thing in Australia, except they did it to everybody. But they had a similar kind of a thing in Australia, and they did a study afterwards and found that they passed none of it on. That it all fell through the bottom line as increased profits. And that would be my prediction.
The merchants did not lobby the way they lobbied so that they weren’t going to increase their profits in this thing.
EVANS: Bill, it’s a fascinating lawsuit, quite ambitious, really quite interesting. We hope you we get a chance to talk to you sometime after January, maybe after there’s a court ruling. But thank you very much for you time today. We really appreciate it.
COOPER: Thank you very much. Have a good day.
Executive Bio: William A. Cooper, Chairman & Chief Executive Officer
William A. Cooper returned as Chief Executive Officer of TCF Financial Corporation in July 2008. He had previously been Chief Executive Officer of TCF from 1985 to 2005. Mr. Cooper has also been Chairman of the Board of TCF Financial Corporation and will continue in this capacity.
Mr. Cooper serves as Chairman of the Board of Directors of Friends of Education.
A graduate of Wayne State University, Detroit, Mr. Cooper holds a bachelor’s degree in accounting with majors in economics and finance. He is a certified public accountant, and was a senior auditor for Touche, Ross & Co., Detroit, for four years.
TCF Bank Files Lawsuit Challenging The Durbin Amendment of the Dodd-Frank Act
Dealing with Durbin Briefing Room
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More