TCF Financial Corp.’s lawsuit seeking to block the Federal Reserve Board from capping debit card interchange rates is about more than preserving revenue; even more harmful restrictions could be imposed on banks if the industry stands idle, according to William Cooper, TCF chairman and chief executive.

“In some ways, this is a line in the sand for the industry,” an emotional Cooper said during a conference call with analysts to discuss TCF’s decision to challenge the so-called Durbin Amendment to the Dodd-Frank Act as unconstitutional.

After the Troubled Asset Relief Program and regulatory limits on overdraft fees, the TCF chairman and chief executive had had enough, he said. “If we don’t clarify things now, we’ll see a lot more of this,” Cooper said.

If the interchange rules are not challenged, lawmakers eventually could seek to cap the interest rate that big banks may charge for mortgages and other products, he said.

Naturally, there is a financial reason for TCF challenging the law. The $17 billion-asset company generates $100 million in annual revenue from interchange, though Cooper declined to estimate how much of that is at risk if the Fed reduces interchange rates. He complained that TCF would have to charge customers more to help offset the revenue shortfall, while the rules will lower the costs of big retailers such as Wal-Mart Stores Inc. and Target Corp.

Cooper also is concerned that customers, irate over higher fees, could leave TCF and other big banks because the Durbin amendment exempts banks with less than $10 billion.

The TCF complaint, filed Oct. 12 in the U.S. District Court for South Dakota against the Federal Reserve Board, argues that caps forcing certain banks to offer debit card interchange below cost is unconstitutional, violates due process rights, and prevents TCF and others from making a reasonable rate of return on its capital investments (see story).

The litigation also takes aim at the exemption for smaller banks, which TCF said would put it and about 100 other banks at an unfair disadvantage.

Cooper said he has received considerable support from other banks, via phone calls and e-mails, and the company expects many banks to file supporting briefs. Cooper did not name the banks.

He sought to refute speculation that the litigation is a stall tactic to gum up financial reform. “We filed the lawsuit now because we would like it resolved before the Fed comes out with rules,” he said. “If the court says to wait, then we’ll wait.”

The Fed is scheduled to issue a draft rule early next month, with a final rule due in April. If unabated, the rule could to take effect in July.

“We’ll cross that bridge when we come to it,” Cooper said when asked how TCF would react if the lawsuit fails. “We’ve crossed the (overdraft-protection) opt-in bridge, the TARP bridge, and everything else that has come out of Congress.”

TCF would have no choice but to comply with the rule if its legal challenge fails given how integral debit cards are to checking accounts, Cooper said. “It would be like selling the hamburger without the burger,” he said. “I can’t expect my customers to accept a checking account that lacks the same features offered at other banks.”

The traditionally outspoken Cooper issued a rallying cry to the banking industry near the end of the call.

“The banking industry needs to get off its butt and … jump-start this economy,” he said. “We are not as unpopular as we were a year ago because people have figured out that the economy doesn’t move if the banking industry doesn’t move.”

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