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45 cents short, $96 in fees: Court approves TD insufficient fund fees settlement

The spotlight on the financial struggles faced by Canadians due to insufficient funds has intensified with the approval of a $15.9-million settlement in a class-action lawsuit against TD Bank. The lawsuit raised concerns about the bank's disclosure practices related to customers potentially being doubly charged the $48 non-sufficient funds (NSF) fee.

Lead plaintiff Tyler Dufault's case exemplified the issue, as he incurred $96 in fees from TD Bank for falling short by a mere 45 cents on a PayPal bill. The settlement, greenlit by the Ontario Superior Court, addresses the question of proper disclosure and highlights the broader scrutiny of such fees, with calls from advocates and the federal government to reduce or eliminate them.

In Canada, major banks charge between $45 and $50 when there are insufficient funds to cover pre-authorized debits like automatic bill payments. If the transaction fails, merchants can attempt a second charge within 30 days. TD, while not admitting liability in the settlement, has committed to amending disclosures and modifying its policy to allow a full fee reversal for first-time occurrences.

Despite these adjustments, TD maintains that determining whether a charge is a repeat or a new purchase is unclear, emphasizing the uniqueness of each payment instruction. The settlement aims to compensate approximately 105,000 TD customers who were double-charged between Feb. 2, 2019, and Nov. 27, 2023, providing an insight into the prevalence of such fee-related issues.

Adam Tanel, a partner at Koskie Minsky leading the class action, expressed satisfaction that customers would be reimbursed, questioning the rationale behind a $48 fee for an electronic transaction failure.

The U.S. experience offers a different perspective, with many banks eliminating NSF fees under regulatory pressure. In contrast, Canadian banks have been reluctant to follow suit. The cost of processing these transactions is minimal, as highlighted by the Consumer Financial Protection Bureau in the U.S., estimating less than half a cent for handling non-sufficient funds in debit transactions.

The refusal of major Canadian banks, including TD, to eliminate NSF fees in Canada contrasts with their decisions in the U.S. market. While differences in markets and ongoing lawsuits hinder responses from BMO, RBC, Scotiabank, and CIBC, the Canadian government has implemented protection measures, such as low-balance alerts, to mitigate the impact on consumers.

As discussions about lowering NSF fees gain momentum, advocates argue that these fees disproportionately affect low-income Canadians, emphasizing the need for additional measures in the upcoming budget. Donna Borden from the anti-poverty group Acorn highlighted the challenges faced by individuals, citing instances where unexpected charges exacerbate financial struggles.

The debate around NSF fees underscores the broader issue of financial vulnerability, prompting a closer examination of banking practices and regulatory frameworks to ensure fair treatment and protection for consumers facing economic hardships.