The U.S. District Judge in Miami has given the preliminary
approval for the payment of a total of $199.5 million by
The Toronto-Dominion Bank
) and Citizens Bank - a unit of
The Royal Bank of Scotland Group plc
). The payment relates to the settlement of class lawsuits filed by
the customers of these companies for charging disproportionate
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As a part of the settlement deal, TD Bank will pay $62 million to
its customers in 15 states and the District of Columbia. Likewise,
Citizens will have to pay $137.5 million to customers across the
The case related to TD Bank was settled in May, while Citizens
agreed to settle the lawsuit in April. However, both awaited court
The customers had accused TD Bank and Citizens of regularly dealing
with transactions pertaining to debit cards in the order of the
magnitude of the transaction rather than following 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. Hence, overdraft fees piled up in excess.
Moreover, TD Bank was accused of violating the U.S. Federal
Reserve's regulation of obtaining customer approval before charging
any overdraft fees. Earlier, in 2010, the Fed made it mandatory for
the banks to timely reveal the charging of overdraft fees to the
customers and to get their approval before initiating the overdraft
facility on the debit cards.
TD Bank and Citizens are not the only institutions to settle
lawsuits related to overdraft fees. Over a dozen banks have already
settled or are in the process of settling similar charges.
The major banks who have already resolved the issue include
JPMorgan Chase & Co.
Bank of America Corporation
Commerce Bancshares Inc.
Wells Fargo & Co.
PNC Financial Services Group Inc.
). Other large financial institutions under the purview of such
charges that have not yet come up with the settlement include
Capital One Financial Corp.
The settlements of such claims are bound to affect the company's
financials, but at the same time it will restore customers'
confidence in the federal laws to some extent.
Though the number of banks involved in charging unfair overdraft
fees has been increasing, the steps taken by the regulators are
expected to curb such unfair practices going forward. Moreover, the
banks will be dissuaded from such misconduct as a result of rising
litigation costs as more customers are now opposing such unjust
ways of the banks.
Currently, TD Bank retains its Zacks #2 Rank, which translates into
a short-term Buy rating, while The Royal Bank of Scotland retains a
Zacks #3 Rank, which translates into a short-term Hold rating.