* Files lawsuit challenging changes to Dodd-Frank Act
* Says amendment could result in competitive disadvantage
* Says amendment denies reasonable returns on investment
* TCF shares close down 3.7 percent (Adds details on lawsuit filing; updates TCF share price)
By Dave Clarke
WASHINGTON/NEW YORK, Oct 12 The new U.S. financial reform law is facing another legal challenge in a sign that the courts could become an increasingly important battleground over how the industry is regulated.
TCF Financial Corp (TCB.N) said its banking unit filed a lawsuit on Tuesday challenging a section of the new Dodd-Frank Act that seeks to limit the fees banks can receive when their debit cards are used.
TCF said the provision was unconstitutional because it only applies to about 1 percent of U.S. banks -- those with $10 billion or more in assets -- and because it will set a fee that only takes into account a narrow aspect of a service's cost.
"The statute makes no more sense than regulating the price of a Burger King hamburger solely to the costs of the meat and the bun," TCF Chief Executive Officer William Cooper said on a conference call.
The National Retail Federation estimates debit card fees, which are about 1 percent to 2 percent of each transaction, total $20 billion annually.
Supporters of the limit on these so-called interchange fees were quick to dismiss the suit.
"Having TCF complain about the interchange amendment is like having BP (BP.L) complain about environmental laws," said David Balto, a Washington lawyer who works with consumer groups.
Senator Richard Durbin, who authored the language, said TCF was misstating the law. Rather than setting a fee, it will restrict what could be charged to the cost of processing a transaction, he said.
Durbin said he was "confident that our language will be found to be fair and constitutional."
The TCF lawsuit is among the first legal shots taken at Dodd-Frank, but in recent weeks the financial services industry has shown that it is prepared to use the courts as a venue for battling the new regulations.
The U.S. Chamber of Commerce has said it will challenge aspects of the law, and it already has one victory.
Earlier this month the Securities and Exchange Commission decided to delay its rule giving shareholders more power to influence corporate boards after the chamber and the Business Roundtable sued the agency. [ID:nN04139789]
Republicans have said they will try to repeal parts of the law if they gain control of Congress next year.
A Reuters poll released on Tuesday, however, showed that only three of 53 Wall Street participants say repealing Dodd-Frank is a top priority. [ID:nN11142851]
Whether legal challenges will mostly be coordinated or be rifle shots from individual institutions remains unclear.
Cooper said TCF had spoken with other banks and the American Bankers Association but decided to move on its own to avoid delays. The lawsuit was filed on Tuesday in U.S. District Court for the District of South Dakota. It named as defendants a number of top federal officials, including Federal Reserve Chairman Ben Bernanke and Fed Vice Chair Janet Yellen.
PUMPING PROFITS OR COVERING COSTS?
The fee provision calls for the Federal Reserve to write rules putting "reasonable" limits on so-called interchange transaction fees that banks receive from merchants via networks like Visa Inc (V.N) and MasterCard Inc (MA.N) when a customer uses a debit card. Those rules are to take effect by mid-April.
Retailers and consumer groups charge that banks use the fees to pump up profits. Banks counter they are needed to pay for the technical and fraud prevention infrastructure supporting debit card use.
Large banks, card networks and retailers have been focusing a lot of their lobbying efforts on the Fed.
Fed officials have held a dozen meetings with private-sector officials and advocates. The lobbying started when officials from Visa paid a visit just two days after Dodd-Frank was signed into law, according to information released by the Fed. Among those that also have bent the Fed's ear on the issue are Bank of America (BAC.N), Wells Fargo (WFC.N), JPMorgan Chase (JPM.N), American Express (AXP.N) and MasterCard.
Last month the Fed sent banks and card networks a survey as part of an effort to collect information before writing new rules. Responses are due Tuesday.
Shares of TCF closed down 3.7 percent at $15.34 on the New York Stock Exchange. (Reporting by Dave Clarke and Rachel Chitra in Bangalore; additional reporting by Dena Aubin in New York; Editing by Gopakumar Warrier and Lisa Von Ahn)