Renowned scholar discusses Wall Street Reform Act at 30th Dunwody Lecture
By Margaret Rowell Good
Special to FlaLaw
A handful of judges, alumni of the Florida Law Review, law school professors and students filled the Chesterfield Smith Ceremonial Classroom at the University of Florida Levin College of Law to hear one of the nation’s preeminent Law and Economics scholars give a lively and entertaining lecture on the Wall Street Reform Act.
Renowned scholar Richard A. Epstein, the inaugural Laurence A. Tisch Professor of Law at New York University Law School, spoke to more than 100 guests March 25 at the 30th Annual Florida Law Review Dunwody Distinguished Lecture in Law.
Epstein, prior to joining the faculty at NYU, was the James Parker Hall Distinguished Service Professor of Law at the University of Chicago. Epstein has also served as the Peter and Kirstin Bedford Senior Fellow at the Hoover Institution since 2000.
Although the lecture was entitled “The Constitutionality of the Wall Street Reform Act,” Epstein admitted that he had not read the entire “sprawling conglomeration of multiple provisions” and proposed instead that he discuss one section of the Act, a subject “dear to the hearts of everybody (at the lecture)” – debit interchange rates.
Section 1075, commonly known as the Durbin Amendment, is the only section of the Act that has been subject to constitutional scrutiny.
Epstein is a member of the legal team representing TCF Financial Corporation, the bank bringing the constitutional challenge. The case is scheduled for an injunction hearing in federal district court today in Sioux Falls, S.D. As the leading academic spokesman in support of a more vigorous interpretation of the property clauses of the Constitution, Epstein discussed the confiscatory nature of Section 1075, which deals with the debit card interchange system.
Through Section 1075, which was passed into law in July 2010, the Federal Reserve gained regulatory control over the fees that banks charge businesses when customers use debit cards. Walgreens initially lobbied for the Amendment, which would relieve retail businesses of some of the transactional fees charged in debit card transactions.
Epstein noted that in the last five or six years, debit card revenues have exceeded credit card revenues and debit card usage has continued to grow. Although Epstein would take that as a sign of a robust and thriving market, this is not the inference that Walgreens and Sen. Dick Durbin made. According to Epstein in this “topsy turvy economy and economic theory that we have today, the greater your level of success, the greater exploitation you have committed against the unsuspecting.”
The Federal Reserve, as the agency responsible for implementing the Durbin Amendment, will require the debit interchange fees be reduced by about 75 to 90 percent. As an example, Epstein explained that for a bank like TCF, with overall profits of $200 million, “the loss of interchange fees is about $80 million, which means that your profits go down to 20 percent of what they previously were.”
The government argues that banks can make up for the interchange loss by imposing higher fees on their retail customers, who, in theory, should be paying less for consumer items because of the transaction fee regulation. Epstein believes that this compensation is not sufficient, and hence the action constitutes a regulatory taking. As Epstein noted, “Nobody would ever say, in a case of land, that if you took a plot of land worth $1 million, it was OK because you gave somebody the right to lease a another plot of land from which you would get $10 even. The fact that there is an existence of a right to get some money as opposed to the full and perfect equivalent of what you’ve lost, which is the constitutional standard” is insufficient.
The Dunwody Distinguished Lecture in Law was established by the law firms of Dunwody, White and Landon, P.A. and Mershon, Sawyer, Johnston, Dunwody and Cole and the U.S. Sugar Corporation in honor of Elliot and Atwood Dunwody.