Published on May 04, 2022
Despite finding TD Bank (TD) wrongly pressured customers into opening accounts and using banking services they didn’t want, a leading bank regulator during the Trump administration opted to give the company a private reprimand rather than a fine for the abuses, according to sources familiar with the matter.
The Office of the Comptroller of the Currency (OCC), the leading regulator for national banks, detected the misconduct at TD Bank during an industrywide probe into fake customer accounts spurred by a Wells Fargo (WFC) scandal that came to light in September 2016.
Wells Fargo employees had created more than 3 million fake accounts to meet sky-high sales goals. In the industrywide investigation, regulators found that TD Bank’s aggressive sales goals and lax controls resulted in similar abuses: Employees created new accounts and enrolled customers in services without their permission, according to sources familiar with the confidential 2017 findings.
The OCC, led at the time by Trump appointee Keith Noreika, decided against a fine or even a public disclosure of TD Bank’s misconduct. Instead, the OCC gave TD Bank a private reprimand known as a Matter Requiring Attention (MRA) and ordered the bank to make sure that customers received services they wanted and understood.
Noreika declined to comment for this story, but a spokesperson for Simpson Thacher & Bartlett – the law firm where Noreika works – said when Noreika headed the OCC, he “was recused from all matters related to TD Bank.”
Revelations about abuses at TD Bank, which previously haven’t been publicly disclosed, come as the lender seeks regulatory approvals for its $13.4 billion bid for First Horizon (FHN), which would make it the sixth-largest retail financial institution in the U.S.
How regulators reviewing the deal will regard the 2017 findings is an open question, especially since some current and former TD Bank workers said the suspect sales practices continue. The Biden administration has taken a more skeptical view of bank mergers and has revitalized industry regulation under the OCC and other agencies such as the Consumer Financial Protection Bureau (CFPB), which oversees the business practices of banks, credit unions and thrifts with over $10 billion in assets.
In a separate 2020 case, TD Bank paid about $120 million to settle CFPB charges of wrongly pushing customers to enroll in overdraft protection.
TD Bank has assured regulators that it has eliminated unwanted customer accounts, industry sources said. But nine people who work at TD Bank or have left in the last two years told The Capitol Forum that the company still expects its branch workers to nudge customers into accounts, cards and loans that they don’t need. The current and former employees asked not to be named because they still work in the banking sector.
“You want to be ethical, but you have to reach your goals,” said one former TD Bank employee who worked at a Virginia branch until early this year. “Managers have the same pressure. They don’t ask questions if you’re reaching your goal.”
Bank employees also still strong-arm customers into signing up for overdraft protection, earning bonus points for every new account that carries the service, workers said.
“If you open an account and it doesn’t have overdraft protection, your manager will want to know why,” said one bank employee who works at a branch in New Hampshire.
In its 2017 findings, the OCC didn’t determine how many of TD Bank’s customers were affected, but the agency concluded the problematic account practices stretched across retail branches from Maine to Florida, according to the sources. The OCC declined to comment for this story.
TD Bank is so lax about opening new accounts that abuse is inevitable, branch workers said.
“It’s easier to open a TD Bank account than it is to cash a check here,” said one branch employee, pointing out that the institution requires two forms of identification to cash a check but only one form of ID to open a new account.
In an emailed statement, TD Bank disputed the accusations of misconduct. “We strongly disagree with the characterization of information presented as facts regarding TD Bank’s fraud procedures,” according to the statement. “We strongly disagree with any implications of systemic sales practices issues, or that our fraud controls are somehow related to sales practices or otherwise inadequate.”
In the statement, TD Bank also noted that the OCC in its industrywide investigation didn’t identify any banks beyond Wells Fargo that had opened accounts without customer consent. “As part of routine and ongoing monitoring, TD Bank also has not identified any systemic sales practice issues,” the bank said.
TD Bank also said its “compensation practices are carefully and actively managed” and that “incentive programs place a heavy emphasis on customer satisfaction.” The full statement can be found here.
Points and Quotas. But the current and former employees described high-pressure incentive programs that encouraged sales above all else. TD Bank employees who work in retail branches are awarded points that can lead to cash bonuses when they persuade a customer to open a new account or enroll in fee-generating services. Every few months, employees must hit their goals for new business if they want to receive a bonus. Employees who miss the goals risk losing their jobs, current and former employees said.
TD Bank branch employees described several ways that the point system and sales pressure can lead to consumer harm.
Industrywide review. The scrutiny of TD Bank and other institutions followed Wells Fargo’s well-publicized misconduct. Tom Curry, then head of the OCC under President Barack Obama, ordered an industrywide review of account openings and sales in 2016. The resulting confidential findings weren’t completed until mid-2017, when Trump appointee Noreika led the agency.
The findings identified TD Bank as one of a handful of retail financial institutions that had systemic problems in its account opening, verification and sales process, according to sources. The OCC, though, decided not to pursue enforcement actions against TD Bank and the other institutions, which the sources didn’t name.
While the OCC took no public action against the banks, the CFPB sued 5/3 Bank in 2020 for allegedly opening bogus accounts. The case is still being litigated in federal court.
The OCC decision not to pursue TD Bank occurred as the Trump administration sought to ease regulations on banks in response to President Obama’s stepped-up enforcement in the Great Recession’s wake.
Following his stint at OCC, Noreika returned to his former law firm – Simpson Thacher & Bartlett, where he represented TD Bank in the $26 billion sale of its affiliate brokerage, TD Ameritrade, to Charles Schwab (SCHW) in 2020.
The firm is advising TD Bank on its planned First Horizon buyout.
The proposed merger requires signoff from DOJ as well as the Federal Reserve and OCC. The revelations about TD Bank come as the Biden administration has signaled an increasingly hawkish line toward bank tie-ups.
That effort began in earnest after the president’s July 9 executive order on competition, which directed the bank enforcement agencies to adopt a plan “for the revitalization of merger oversight under the Bank Merger Act and the Bank Holding Company Act of 1956.”
The order, as well as the administration’s broader skepticism of consolidation, has led to a slew of delays for pending bank deals seeking Fed approval.
The Fed’s evaluation of bank mergers includes not only competition questions but also issues like financial stability, the companies’ records on combating money laundering, and more amorphous factors like “the convenience and needs of the community to be served.”
Unlike, for example, a deal that creates obvious financial stability risks or involves firms with unacceptable money-laundering records, TD’s potential transgressions aren’t necessarily of the type that have historically led the Fed to reject or delay proposed mergers.
But under the Biden administration, past isn’t necessarily prologue and concern that the merger would enable TD Bank to expand suspect business practices to new markets could draw Fed scrutiny.
Presumably cognizant of the Fed’s recent hawkishness – and foot-dragging – TD Bank said in announcing the First Horizon deal on February 28 that it didn’t expect to close the transaction before January 31, 2023, the end of its first fiscal quarter.
The merger agreement includes a February 27, 2023 outside date, although either party can extend that deadline for one additional three-month period if Fed or other required approvals remain outstanding.
Despite the transaction’s significant size, TD Bank isn’t liable for a reverse breakup fee if it terminates the deal after the outside date, or due to a failure to win Fed approval.