In re TD Bank, N.A.
150 F. Supp. 3d 593
D.S.C.2015Background
- Plaintiffs (multiple consolidated putative class actions; MDL No. 2613) challenge TD Bank’s overdraft practices: use of “available balance,” high-to-low posting, honoring debit transactions into overdraft without notice, assessment of ATM/one-time debit fees without EFTA opt-in, and a $20 "sustained" overdraft fee.
- Plaintiffs plead breach of contract (PDAA and predecessor state-bank agreements), implied covenant of good faith, unconscionability, conversion, unjust enrichment, consumer-protection statutes from multiple jurisdictions, EFTA claims, and a usury/NBA claim challenging the sustained overdraft fee.
- TD Bank moved to dismiss counts I–VI and VIII for failure to state a claim and argued federal preemption under the National Bank Act/OCC regulations for many state-law claims. Plaintiffs conceded some statutory claims (Mass., Pa., Vt.).
- Court treated the preemption question as an "as-applied" Barnett Bank inquiry: whether state-law claims would "prevent or significantly interfere" with nationally chartered banks’ incidental powers (deposit-taking, setting fees, posting order, honoring overdrafts).
- The Court granted dismissal in part and denied it in part: it held state-law claims premised on high-to-low posting and intentional honoring-into-overdraft are preempted; claims premised on assessing fees despite sufficient actual funds survive; conversion and unjust-enrichment theories (as pleaded) survive; unconscionability (asserted as an affirmative claim) and the usury/NBA claim re: the sustained fee were dismissed; certain state statutory claims were dismissed for specific reasons (e.g., Delaware DTPA, New Hampshire statute, South Carolina class claims).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether state-law claims challenging high-to-low posting and honoring transactions into overdraft are preempted by NBA/OCC authority | Plaintiffs say these practices are unfair, deceptive, breach contracts, and are not immune from state law; seek remedies (restitution, disgorgement, injunctive relief) | TD argues posting order and decision to honor overdrafts are discretionary pricing/deposit functions delegated to national banks and OCC; state law would significantly interfere | Preempted: claims (Counts II–VI) challenging posting order and intentional honoring-into-overdraft are preempted (follow Gutierrez reasoning) |
| Whether state-law claims based on assessing overdraft fees when actual balance suffices (use of "available balance") are preempted | Plaintiffs: using available balance to trigger fees is unfair, breaches PDAA and implied covenant; not an OCC-authorized exercise that warrants preemption | TD: contract/disclosure permits use of available balance; federal banking law supports fee-setting | Not preempted: sufficient-funds theory survives — only incidental interference with bank powers; Counts I–VI survive to extent based on this theory |
| Breach of contract (Count I): does PDAA allow the challenged practices? | Plaintiffs: PDAA ambiguous re: "balance" vs "available balance," disclosure insufficiencies, and failure to notify customers about honors into overdraft | TD: PDAA expressly discloses available-balance rules, posting order (largest-to-smallest within categories), and overdraft charges; no breach | Mixed: Count I survives re: sufficient-funds theory and pre-merger state-bank contracts; Count I dismissed as to high-to-low posting (PDAA plainly discloses posting method) |
| Implied covenant of good faith (Count II) — viable independent claim? | Plaintiffs: even if literal contract terms permit practices, TD must exercise discretion reasonably; implied covenant can enforce fairness | TD: covenant cannot contradict express contract; where contract permits action, implied-covenant claim fails; in some states redundant with contract | Denied dismissal: Count II survives generally (but is preempted to the extent it seeks to limit posting/overdraft discretion) |
| Unconscionability (Count III) as an affirmative claim | Plaintiffs initially pleaded it but later conceded dismissal | TD: unconscionability is primarily a defense, not an affirmative cause of action; plaintiffs fail to plead elements | Dismissed (plaintiffs conceded; court agrees unconscionability is not an affirmative cause of action here) |
| Conversion & unjust enrichment (Counts IV–V) | Plaintiffs: wrongful debiting of deposited funds and retention of fees supports conversion and restitution; alternative to contract remedies | TD: depositor–bank is creditor–debtor relationship; funds aren’t identifiable; economic-loss/gist-of-action bars tort recovery | Conversion: survives (plaintiffs alleged wrongful taking beyond contractual rights). Unjust enrichment: survives as alternative theory at pleading stage (not barred now) |
| Consumer-protection statutes (Count VI) — state-by-state viability (selected) | Plaintiffs: statutes reach unfair/deceptive practices and alleged misrepresentations/disclosures in agreements; causation/reliance sufficiently alleged | TD: preemption as to many theories; some state statutes exempt national banks or bar representative/class actions; some statutes require reliance/causation | Partially dismissed: Delaware DTPA claim dismissed (no standing for consumers); New Hampshire statute claim dismissed (federal banking oversight exemption); South Carolina class claims dismissed (SCUTPA bars representative actions); other state statutory claims (CT, MD, NJ, NY, NC, individual SC, D.C.) survive to the extent not preempted |
| Usury / National Bank Act (Count VIII) — is the $20 "sustained" overdraft fee "interest"? | Plaintiffs: sustained fee functions as interest on an informal short-term loan (extensions of credit), producing usurious effective APRs | TD: sustained fee is a non-interest deposit account service charge governed by OCC rule §7.4002 and not "interest" under §7.4001; Regulation O (insider credit) inapplicable | Dismissed: sustained overdraft fee is not "interest" under NBA/OCC guidance; Count VIII fails to state a claim |
Key Cases Cited
- Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712 (9th Cir. 2012) (federal law preempts state regulation that would dictate a national bank’s posting method or substitute state "good faith" constraints for federal bank powers)
- Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (U.S. 1996) (state law that significantly impairs exercise of national-bank powers is preempted)
- Watters v. Wachovia Bank, N.A., 550 U.S. 1 (U.S. 2007) (national banks subject to state laws of general application except where conflict/significant interference exists)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for Rule 12(b)(6) pleadings)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (Twombly pleading standard: allegations must rise above speculative level)
- Monroe Retail, Inc. v. RBS Citizens, N.A., 589 F.3d 274 (6th Cir. 2009) (preemption can extend to bank fee disputes where state law significantly interferes with bank discretion)