The Consumer Financial Protection Bureau (CFPB) says it has reached a settlement agreement with TD Bank, resolving civil charges regarding its optional overdraft service: Debit Card Advance (DCA). The complaint covers the four-year period between 2014 and 2018.
The CFPB alleges that TD Bank presented the program as a free service that is part of its checking accounts. In reality, the agency says consumers were charged $35 each time the bank covered an overdraft. Without admitting guilt, the bank agreed to pay $122 million to settle the charges. Of that amount, $97 million will be paid as restitution to affected customers.
The bureau determined that TD Bank’s overdraft program violated the Electronic Fund Transfer Act (EFTA) and Regulation E by charging consumers overdraft fees for ATM and one-time debit card transactions without obtaining their consent.
It further found that TD Bank engaged in “deceptive and abusive acts or practices” in violation of the Consumer Financial Protection Act of 2010 (CFPA). If that weren’t enough the Bureau accused TD Bank of engaging in practices prohibited by the Fair Credit Reporting Act (FCRA).
Charging for convenience?
TD Bank contends that the issue of the complaint comes down to informed consent. TD Bank CEO Greg Braca says customers who enrolled in the service authorized TD Bank to pay ATM and one-time debit card transactions when they don't have enough money available in their account to cover transactions.
"Throughout the period in question, TD had a clear process to secure formal consent before providing this service to customers, enabling them to make an informed and conscious choice,” Braca said. “DCA provides customers with a safe, reliable source of short-term liquidity and helps them avoid the inconvenience that may result from declined transactions.”
But the CFPB points out that convenience also comes with a $35 per transaction charge, something that was quite common before the 2010 law was enacted. In fact, bank customers were charged this overdraft fee unless they specifically “opted-out” of coverage before 2010.
As a result, many consumers bitterly complained that on one shopping outing they might rack up as many as five $35 charges. Many said they would prefer their purchase be declined if they lacked sufficient funds in their account.
The 2010 law turned the equation around, only allowing banks to provide “overdraft protection” to customers who specifically opted-in for the coverage. Customers who did not opt-in would have purchases declined if they lacked the funds, but they would not be charged a fee.
“The Bureau specifically found that TD Bank charged consumers overdraft fees for ATM and one-time debit card transactions without obtaining their affirmative consent in violation of EFTA and Regulation E, both after new customers opened checking accounts at TD Bank branches and after new customers opened checking accounts at events held outside of Bank branches,” CFPB said in a press release.