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.
Background
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.
Similar Settlements
Last month, Citizens Bank, a unit of
The Royal Bank of Scotland Group
plc
(
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.
Last year,
Commerce Bancshares Inc
. (
CBSH
) paid $18.3 million while
Bank of America Corporation
(
BAC
) shelled out $410 million to the customers to resolve similar
claims.
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
.
Conclusion
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.
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