The U.S. arm of Toronto-Dominion Bank is eliminating charges for overdrafts of US$50 or less after several competitors overhauled their own fee structures in the face of political pressure.
TD will also give U.S. customers who overdraw their account by more than US$50 a 24-hour window to restore a positive balance and avoid a fee, and send out alerts when account balances are low, the bank said on Tuesday.
While the changes make TD’s U.S. overdraft structure friendlier to customers, they could also eat into the Toronto-based bank’s profits. Overdraft fees made up an estimated 5.5 per cent of TD’s U.S. banking revenue in 2021 – nearly US$477-million, according to regulatory filings.
“Competitive moves aimed at eliminating or reducing overdraft fees present an obvious risk to an important income source for TD,” said Gabriel Dechaine, an analyst at National Bank Financial Inc., in a note to clients last month.
In recent months, competitors have made aggressive moves to adjust their own overdraft charges. Ally Financial and Capital One Financial eliminated the fees altogether, JPMorgan promised to give customers a day to restore their account balances and Bank of America reduced its overdraft fee.
Some U.S. lawmakers, including prominent Democratic Senator Elizabeth Warren, have been fiercely critical of overdraft fees that U.S. banks charge, and have urged regulators to more aggressively monitor overdraft practices.
TD has made other changes to its U.S. overdraft policies, including reducing the number of times a customer could be charged a US$35 fee for going into overdraft. And last fall, the bank introduced a new account that cannot be overdrawn, which now makes up about 10 per cent of the bank’s newly opened accounts, or nearly 40,000 accounts so far.
“We listen to our customers,” said Matt Boss, TD’s U.S. head of consumer products, in a statement. “These enhancements are designed to give customers more control over their finances.”
In Canada, TD charges a lower fee of $5 per overdraft plus interest on overdraft amounts, and offers a $5-per-month protection plan that allows customers go into overdraft as many times as they like.
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James Bradshaw