The future of the potentially sixth-largest U.S. retail bank hangs on regulators, it’s safe to say after the public comment period closed last week on the proposed merger between TD Bank and First Horizon.
Before the deadline, however, a dozen advocacy groups — led by the Center for Responsible Lending — wrote to officials at the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Bank of Philadelphia, urging them to hamper the agreement.
The odds can be long. The groups, citing a 2021 article in the Yale Journal on Regulation, noted that federal banking regulators had not formally rejected a merger request in 15 years. Perhaps the groups see the TD deal as a test of how seriously the Biden administration is ordering a “further review” of mergers in the sector.
Three deals valued at $8 billion or more are underway: TD-First Horizon, US Bank’s proposed acquisition of MUFG Union Bank, and Bank of Montreal’s proposed acquisition of Bank of the West. And TD seems to have garnered the most pushback.
The 12 groups accused the Canadian lender of charging a disproportionate amount of overdraft fees compared to similarly sized banks. TD generated the fourth-highest absolute dollar total from these fees last year, according to the Consumer Financial Protection Bureau (CFPB) – although the gap between the top three (Wells Fargo, JPMorgan Chase and Bank of America) and TD is considerable.
However, overdraft and insufficient funds fees accounted for a third of TD’s non-interest income at 33% – well above the 4% proportion of fees included at JPMorgan Chase, or the 7% slice at Bank of America and Wells, the groups said.
Moreover, TD has been relatively slow to move away from that model, the groups said, pointing to competitors such as Citi and Capital One, which have moved away from charging overdraft fees. Bank of America and others, the groups added, dramatically reduced the amount charged per instance, and PNC limited overdrafts to one per day.
The groups also cited a dichotomy in TD’s account structure: the bank charges Canadian customers $5 per overdraft and a maximum of one such fee per day, but continues to charge U.S. customers $35 per overdraft. discovered up to three times a day, including at ATMs. debit card transactions and purchases.
In a statement last week to American Banker, TD cited its new no-overdraft bank account as an example of meeting changing customer expectations. The bank also said it plans to open branches in underserved areas and launched a fund to support non-white-owned small businesses.
Advocacy groups, however, have claimed that TD’s no-overdraft account options have limited functionality.
More troubling, they said, is TD’s $122 million settlement with the CFPB in 2020 over what the regulator deemed “misleading” short-listing practices. The regulator alleged that the bank charged overdraft fees without obtaining customer consent and misrepresented the terms of an optional product.
“The picture that emerges from TD’s punitive overdraft policies and unfair and deceptive account practices, as well as opposition from lawmakers, is that TD is out of step with leaders in the field,” the authors wrote. 12 groups last week.
Sen. Elizabeth Warren, D-MA, is leading the legislative charge against the TD-First Horizon tie-up. She and three members of Congress wrote to the OCC in June, citing a Capitol Forum report that TD allegedly tricked employees into signing up customers for new accounts and services like overdraft protection without their consent.
The other criticisms from the 12 groups have less to do with TD in particular and are more a reaction to the potential impact of a major lender entering new markets. The merger, the groups say, will mean higher interest rates for mortgages and for small business loans. It will also lead to a greater likelihood of mortgage applications being accepted – but not necessarily for non-white borrowers, the groups said.
The groups also expressed concern that a bank with a history of reliance on overdraft fees and other fees would enter several markets in the Southeast – which are home to a higher concentration of black, brown and low-income consumers. .
In a second-quarter earnings call last week, TD CEO Bharat Masrani said he still believed the merger was on track to close between November and January. TD is required to pay an additional $0.65 per share if the deal doesn’t close by Nov. 27. The transaction can be terminated if it is not completed by February 27, 2023. But banks can also choose to extend this period. timeline – a more common occurrence of the end.
