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Advocates seize on TD-First Horizon deal in rejection plea


Aug 30, 2022

The way forward for the doubtless sixth-largest U.S. retail financial institution is with regulators, it’s protected to say, after the general public remark interval for the proposed merger between TD Financial institution and First Horizon closed final week.

Earlier than the deadline, although, a dozen advocacy teams — led by the Middle for Accountable Lending — wrote to officers on the Workplace of the Comptroller of the Foreign money (OCC) and the Federal Reserve Financial institution of Philadelphia, urging them to curb the deal.

The chances could also be lengthy. The teams, citing a 2021 article within the Yale Journal on Regulation, famous that federal financial institution regulators haven’t formally rejected a merger software in 15 years. Maybe the teams are trying on the TD deal as a take a look at of how severe the Biden administration is in ordering “extra strong scrutiny” of tie-ups within the sector.

Three offers valued at $8 billion or extra are pending: TD-First Horizon, U.S. Financial institution’s proposed acquisition of MUFG Union Financial institution, and Financial institution of Montreal’s proposed buy of Financial institution of the West. And TD appears to have garnered probably the most pushback.

The 12 teams accused the Canadian lender of gathering a disproportionate quantity of overdraft charges relative to like-sized banks. TD generated the fourth-highest complete of absolute {dollars} from these charges final 12 months, in response to the Shopper Monetary Safety Bureau (CFPB) — though the hole between the primary three (Wells Fargo, JPMorgan Chase and Financial institution of America) and TD is sizable.

Nevertheless, overdraft and nonsufficient funds charges made up one-third of TD’s noninterest revenue at 33% — far above the 4% proportion the charges comprised at JPMorgan Chase, or the 7% slice at Financial institution of America and Wells, the teams mentioned.

Additional, TD has been comparatively sluggish to show away from that mannequin, the teams mentioned, pointing to rivals comparable to Citi and Capital One, which deserted charging overdraft charges. Financial institution of America and others, the teams added, have considerably reduce the quantity charged per occasion, and PNC restricted overdrafts to at least one per day. 

The teams additionally cited a dichotomy in TD’s account construction: The financial institution expenses its Canadian clients $5 per overdraft and a most of 1 such charge per day, however continues to cost its U.S. clients $35 per overdraft as much as 3 times per day, together with on ATM transactions and debit-card purchases.

In an announcement final week to American Banker, TD pointed to its new overdraft-free checking account as one instance of assembly the altering expectations of shoppers. The financial institution additionally mentioned it plans to open branches in underserved areas and has launched a fund to assist nonwhite-owned small companies.

The advocacy teams, nonetheless, asserted that TD’s overdraft-free account choices have restricted options.

Extra troubling, they mentioned, is TD’s $122 million settlement with the CFPB in 2020 over what the regulator deemed “misleading” overdraft enrollment practices. The regulator alleged the financial institution charged overdraft charges with out acquiring buyer consent and misrepresented the phrases of an elective product.

“The image that emerges from the TD’s punitive overdraft insurance policies and unfair and misleading account practices, together with legislator opposition, is that TD is out of step with leaders within the subject,” the 12 teams wrote final week.

Sen. Elizabeth Warren, D-MA, leads the legislative cost in opposition to the TD-First Horizon tie-up. She and three members of Congress wrote the OCC in June, citing a Capitol Discussion board report that alleged TD incentivized staff to enroll clients in new accounts and providers like overdraft safety with out their consent.

The 12 teams’ different gripes have much less to do with TD particularly and are extra a response to the potential influence of a big lender coming into new markets. The merger, the teams assert, will lead to increased rates of interest for mortgages and for small-business loans. It would additionally result in a better chance of acceptance for mortgage functions — however not essentially for nonwhite debtors, the teams mentioned.

The teams additionally expressed concern {that a} financial institution with a monitor report of reliance on overdraft and different charges can be coming into a number of markets within the Southeast — dwelling to a better focus of Black, Brown and lower-income shoppers.

On a second-quarter earnings name final week, TD CEO Bharat Masrani mentioned he nonetheless thinks the merger is on monitor for closing between November and January. TD is on the hook to pay an extra $0.65 per share if the deal shouldn’t be accomplished earlier than Nov. 27. The transaction will be terminated if it doesn’t shut by Feb. 27, 2023. However the banks also can select to increase that timeline — a extra commonplace incidence of late.

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