TB Bank Overdraft Fees for Accounts Not Overdrawn Class Action

Banks claim to charge overdraft (OD) fees when they pay a transaction that can’t be covered by the funds in the account. But the complaint for this class action alleges that TD Bank, NA charges OD fees in some instances to pay transactions when funds had previously been set aside for exactly that purpose.

A class and a subclass have been defined for this action:

• The Nationwide APPSN Class is all accountholders who, within the applicable statute of limitations, were charged OD fees on APPSN transactions in a TD checking account.
• The New York Sufficient Funds Subclass is all New York accountholders who, within the applicable statutes of limitations, were charged OD fees on APPSN transactions in a TD checking account.

TD Bank is the American subsidiary of the Canadian Toronto-Dominion Bank. It has some 1,300 branches and 1,900 ATM machines in the US.

The problem of assessing OD fees on transactions that do not actually overdraw accounts comes from a practice called “Authorize Positive, Purportedly Settle Negative” (APPSN).

Here’s the way it works, according to the complaint:

When an accountholder goes to pay a transaction with a debit card, the bank must approve it. The bank then puts aside the funds for the transaction, which will settle later on, possibly as long as three days after the transaction is made. These funds are put aside, in the sense that they no longer show up in the account’s available balance and cannot be used by the accountholder for any other purpose.

The complaint alleges, “As a result, customers’ accounts will always have sufficient available funds to cover these transactions because TD has already sequestered these funds for payment.” This is the “Authorize Positive” part of APPSN, because the transaction was authorized on a positive account balance.

The problem arises when another transaction overdraws the account before the settlement of the first transaction. When the first transaction is then presented for settlement, TD Bank then charges an OD fee, even though it put aside the funds for the transaction when it was made.

This is the “Purportedly Settle Negative” part, which the complaint protests against, because if the funds were set aside and unavailable to the account holder, they should be available to settle the transaction.

The complaint alleges that the Consumer Financial Protection Bureau (CFPB) has called this practice “unfair” and “deceptive.” It quotes the CFPB as saying, “Consumers likely had no reason to anticipate this practice, which was not appropriately disclosed. They therefore could not reasonably avoid incurring the overdraft fees charged.”

The complaint claims, “Thus, for at least several years, TD has been aware that the practice challenge[d] in this case was deemed unfair by United States banking regulators. Notably, TD Bank does not use this practice in Canada where it also has massive banking operations.”

It asserts, “There is no justification for this improper practice, other than to maximize TD’s OD Fee revenue.”

Article Type: Lawsuit
Topic: Consumer
Tags: Overdraft Fees, Unfair Charges, Your Bank