The plaintiff was charged “$96 in NSF fees for a single rejected payment — contrary to the banking agreement and in contravention of provincial consumer protection legislation, resulting in the bank’s unjust enrichment,” the court noted.
The plaintiff tried to make a $19.49 purchase through his PayPal account, which was funded by his TD savings account. The transaction was rejected as he only had $19.04 in the account, and he was charged a $48 overdraft fee.
Four days later, PayPal tried to process the transaction again, and it failed again. The plaintiff was charged a second $48 overdraft fee.
“The issue here is not whether PayPal was wrong to re-present the rejected payment (it wasn’t) or whether the bank was wrong, in theory, to charge a second $48 NSF fee for the additional expense of processing the re-presentment (it wasn’t) — the issue is whether the bank fully and fairly disclosed the possible imposition of this second NSF fee in the fee schedule of its consumer banking agreement,” the court noted.
The plaintiff brought the case as a proposed class action on behalf of all TD clients who have been charged multiple NSF fees in connection with a single transaction.
The bank argued the proposed case should be dismissed on the basis that “there is no cause of action in contract, under provincial consumer protection law or in unjust enrichment.” TD said it was required to treat the second attempt as a separate payment and to charge a second NSF fee under Payments Canada’s “network rules.”
The court rejected that argument, concluding that bank customers cannot be expected to know the payments system’s network rules.
“I agree with counsel for the plaintiff that it would be unreasonable in the extreme to assume that ordinary banking consumers had or should have had a detailed (or any) understanding of the surrounding banking rules and coding requirements set out in the 200-plus pages of the so-called network rules,” the court said, adding, “there is zero chance that any court would conclude otherwise.”
Moreover, the court found the network rules do not mention NSF fees specifically. The imposition of those fees is entirely up to the bank, the court said, as is the disclosure provided to customers.
“The bank always had complete control over the words it used and presumably understood their ordinary meaning. Therefore, the bank should not be surprised by a judicial decision that takes the ordinary meaning of these words seriously and concludes that word choices, particularly in banking fee disclosure provisions, will have consequences,” the court said in its decision.
The court also found the NSF provision in the standard customer agreement didn’t disclose that a customer could be hit with a second NSF fee when a third party tries to re-submit a rejected payment.
As a result, the court concluded that the bank’s motion for dismissal must be rejected and that the case could proceed to a hearing to determine whether to certify it as a class action.
“The bank has not established that the plaintiff has no cause of action,” the court said in its ruling, adding that the imposition of the second NSF fee was not properly disclosed.
The court also noted that a similar case brought in the U.S. was settled for US$41.5 million last year.
“I mention this only to remind all counsel that the proposed class action herein as it goes forward need not re-till plowed ground. It may be useful for both sides to review the counterpart proceeding in the U.S. and determine whether or to what extent it can assist in helping to narrow the issues here,” the court said.
In the meantime, the court ordered the bank to pay $120,000 in costs, saying that “counsels’ deep-dive into Payments Canada’s network rules and standards” increased the costs of the motion for both sides.