TCF going all-out to keep fees rolling in

In recent months, TCF Financial Corp. has mounted an aggressive marketing blitz to keep tens of millions of dollars in overdraft fees flowing its way.

At every turn, the Wayzata-based regional bank has encouraged customers to sign up for overdraft protection, after new federal rules went into affect in August that bar banks from automatically enrolling people. Some customers, like David Hill of Edina, say TCF employees are asking them to sign up every time they walk into a branch or pull up to a TCF drive-through. "I'm just about ready to tell them to stick it," Hill said.

So far, TCF's marketing push isn't working as well as many investors had hoped.

The bank, Minnesota's third-largest by assets, reported Thursday that its income from fees and service charges fell nearly 13 percent to $67.7 million in the third quarter. It was one of the few bleak spots in an otherwise strong quarter from TCF, in which it reported doubling its profits. But given TCF's longtime reliance on fee income, the news was enough to send the stock down 8 percent Thursday.

Shares of TCF fell $1.22 to $13.88 a share. They are up 1.4 percent for the year.

Analysts expressed concern that TCF may have more difficulty replacing lost income from regulatory changes than previously thought. "It's going to be very tricky for them," said Peyton Green, a senior bank analyst at Stern Agee & Leach Inc. in Nashville. "When those fees go away, there's no offset on the expense side of the equation. ... That's why they are so actively engaged in getting people to sign up" for overdraft protection.

In addition to new restrictions on overdraft fees, TCF faces a potential revenue hit from planned new fee limits on debit-card transactions. As part of the financial regulatory overhaul passed this summer, the Federal Reserve is allowed to severely restrict the amount that banks like TCF can collect from retailers in interchange fees each time consumers swipe their debit cards at the register.

The Durbin Amendment is slated to go into effect early next year, so it has yet to affect TCF's financial results. However, the bank said in its suit that the provision could reduce its annual revenue from interchange fees from about $100 million to just $20 million, affecting its ability to raise capital. TCF is asking a federal court in South Dakota for an injunction barring the amendment's enforcement.

On Thursday, TCF Chairman and CEO William Cooper pledged to continue the bank's fight against the federal government over debit-card fees, saying he is confident the courts will rule in TCF's favor.

"I believe it's unconstitutional," Cooper said of the Durbin Amendment. "Because for a regulatory agency to say you have to offer something for less than it costs is clearly unconstitutional and then to apply it to just some banks is even more unconstitutional. I think we'll prevail on that."

TCF has actually had more success than many of its rivals in offsetting the impact of regulatory changes, in part because it has been so aggressive in trying to get people to sign up for overdraft protection. The bank's branch tellers have been reminding customers that, if they don't sign up for overdraft protection, their transactions can be denied -- even if they have enough money in their accounts at the end of the day to cover a transaction.

The bank's full-court press to persuade people to sign up for the service is paying off. So far, about 80 to 85 percent of TCF's new customers are signing up for overdraft protection, which means they will be charged $35 when they overdraw their accounts.