Learn how this court decision highlights the impact of NSF fees on consumers and prompts policy change
The class-action lawsuit against TD Bank, involving the high cost of insufficient funds (NSF) fees, has reached a significant conclusion with the approval of a $15.9m settlement by the Ontario Superior Court.
The case, as BNN Bloomberg reported, drew attention to customers' struggles, exemplified by lead plaintiff Tyler Dufault, whom the bank charged $96 in fees for being 45 cents short on a PayPal bill.
This settlement comes amidst growing scrutiny over the practice of charging NSF fees. In the United States, regulatory pressures have led many banks to eliminate these fees, and Canadian advocates are similarly pushing for reductions or complete removal.
Donna Borden, a leader at the anti-poverty advocacy group Acorn, labeled this as “just another predatory practice of the banks, to charge such a large amount of money.”
In Canada, big banks charge between $45 and $50 for NSF incidents. Merchants are permitted to retry processing a pre-authorized debit within 30 days if the first attempt fails due to insufficient funds. TD Bank, without admitting any liability, agreed to amend its disclosures and change its policy to allow a full reversal of the fee for a first-time issue raised by a customer.
Ashleigh Murphy, a spokesperson for TD, explained, “Each payment instruction is a unique transaction,” and highlighted the bank's efforts to set up balance alerts to help customers avoid NSF fees.
The settlement is anticipated to compensate about 105,000 TD customers who were double charged between February 2019 and November 2023, offering an approximate compensation of $88 each.
Adam Tanel, a partner at Koskie Minsky, which brought the class action and is pursuing similar ones against other major Canadian banks, commented on the high fee for electronic transactions that fail, saying, “Once upon a time there was a lot more work that went into a bank honouring or dishonouring a cheque,” and noting the disparity between the high fees and the minimal processing costs.
The Consumer Financial Protection Bureau in the U.S. reported that the average cost of handling NSF fees for debit transactions is likely less than half a cent. This revelation comes as many US banks, including TD Bank and BMO's US subsidiary, have already eliminated NSF fees, a step not followed in Canada.
Paul Dilda from BMO, speaking about the elimination of NSF fees in the US, described it as a milestone in empowering customers. However, Canadian banks like BMO, RBC, Scotiabank, and CIBC, embroiled in ongoing lawsuits, refrained from commenting on the issue.
The BNN Bloomberg also notes the differences in the Canadian and US banking systems, particularly regarding the processing of immediate debit transactions. In Canada, these are processed in real time, leading to their rejection without any fees if the account lacks sufficient funds.
Recent years have seen Canadian banks implementing several protective measures, including low-balance alerts, to help customers avoid NSF fees.
The Canadian government is considering further actions to lower NSF fees, recognizing their disproportionate impact on low-income Canadians and those without access to overdraft protection due to their credit history.
Borden from Acorn highlighted the various ways people can be caught out by these fees, such as payroll issues leading to missed automatic payments. She emphasized the struggles of those with limited financial resources, stating, “Who has money when you're poor? You just have only so much.”
