The Toronto-Dominion Bank (TD) is the latest to join the ever-growing list of banks facing litigation over misconduct and malpractices concerning overdraft fees. The bank has agreed to pay $62 million in settlement of a lawsuit filed against it by its customers accusing it of unreasonable assessment and collection of overdraft fees. However, the settlement requires approval from the U.S. District Judge in Miami.
The customers accused TD Bank of regularly dealing with transactions pertaining to debit cards in the order of magnitude of the transaction rather than the chronological order.
The intentional malpractices resulted in faster negative balances in customers’ accounts, leading to a larger number of overdrawn transactions, each of which then became chargeable. Consequently, overdraft fees piled up in excess. Moreover, TD Bank violated the U.S. Federal Reserve’s regulation of obtaining customer approval before charging any overdraft fees.
Last month, Citizens Bank, a unit of The Royal Bank of Scotland Groupplc (RBS) has agreed to disburse $137.5 million to settle the lawsuit filed against it by the customers, accusing it of fraudulent transaction entries to procure larger overdraft fees. Likewise, in February, JPMorgan Chase & Co. (JPM) was asked to pay $110 million to clear up a similar lawsuit filed against it.
Both the above-mentioned settlements are still subject to approval of the District Judge.
Moreover, in 2010, Wells Fargo & Co. (WFC) was ordered to repay $203 million by the U.S. District Court of Northern California to recompense customers who had sued the company for charging unfair overdraft fees.
The announcements regarding the settlement of such claims are bound to affect the company’s financials as well as reputation to a great extent. The number of banks being involved in malpractices in order to hike their revenues has considerably increased; however the steps taken by the regulators are expected to reduce such unwarranted activities in the near term.
Moreover, the banks will be deterred from such misconduct on account of rising litigation costs and severe opposition from the customers regarding any unfair banking activity.
Currently, TD Bank retains its Zacks #4 Rank, which translates into a short-term Sell rating. Considering the fundamentals, we also maintain our long-term Neutral recommendation on the stock.Read the Full Research Report on TD
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