Commerce Bank: the convenience of fast food in banking services

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The banking industry, at least since the passage of the Federal Reserve Act in 1913 and the creation of the Federal Deposit Insurance under the Glass-Steagall Act of 1933 (FDIC insurance effectively came into effect on January 1, 1934), has been seen (at least in popular portrayals in books and films) as a rather calm affair conducted in marble buildings by men (although this is changing) who were reserved and rather aloof. That all changed in 1973 in the town of Cherry Hill in southern Jersey, less than 10 miles from Center City, Philadelphia. Vernon Hill, a Wharton School graduate and owner of a fast food restaurant franchise (McDonald’s), decided to put banking “in his ear” by bringing the convenience of fast food to the bank.

Commercial bank

Over the next 33 years, he expanded Commerce Bank from one to over 435 locations, with each branch (internally referred to as a “store”) having a standard and nearly identical design. Commerce was rightly called America’s Most Convenient Bank. The business was open 7 days a week (except in Bergen County, New Jersey). Commerce was known for its penny arcade coin counting machines for customers and non-customers. It offered free Visa gift cards, reimbursement of foreign ATM fees, lollipops and dog biscuits in lobbies and drive-ins. Commerce’s slogan was “No Dumb Fees, No Dumb Hours”, and it became known as “Mc-Bank”. Commerce Bank had “stores” from Florida to New York. The rapid growth and successes of Commerce Bank even led to a 2002 Harvard Business Review article, Frei, Francis X., Hajim, Corey, “Case Study: Commerce Bank” (2002-12-02).

Commerce Bank was a financial institution that favored market-driven entrepreneurship and innovation. But sometimes it went too far, too fast for regulators. This resulted in a Commerce Settlement with both the Office of the Comptroller of the Currency (“OCC”) (the regulator of national banks, i.e. banks incorporated under the National Bank Act of 1863, as amended) and the Board of Governors of the Federal Reserve System (“FRB”), under which Trade was significantly limited in its ability to develop. This led to Vernon Hill retiring in 2007 (with subsequent significant litigation between him and the bank). In late 2007, TD Bank, NA reached an agreement to purchase Commerce Bank in a transaction that ended on March 31, 2008, just in time for the Great Recession of 2007-2009. After 2008, Commerce Bank became TD Bank, NA, or did it? Who exactly is TD Bank, NA, and where does IT come from?

TD Bank, NA

TD Bank, NA, is a US subsidiary (incorporated under the National Bank Act) of The Toronto-Dominion Bank, one of the so-called “Big Five” Canadian banks (and in fact the second largest in Canada). major Canadian bank after the Royal Bank of Canada). The Big Five have struggled to develop in Canada for regulatory and political reasons. For example, the Bank of Montreal acquired the Harris Trust Company of Chicago in 1984, and the Canadian Imperial Bank of Commerce bought the US investment bank Oppenheim & Co. in 1997. As a result, Toronto-Dominion looked to the south of the border as The 21st century has arrived. [It is noteworthy that Toronto-Dominion also looked to the U.S. to grow in capital market services when it acquired Waterhouse Securities in 1996, which, in a later merger, led to Toronto-Dominion becoming the largest owner of TD Ameritrade].

In 1852, the Portland Savings Bank opened in Portland, Maine, and then expanded through mergers and acquisitions to become the Peoples Heritage Bank in 1983. Around 2000, this institution continued to grow. developed throughout New England and became Banknorth. In 2004, Toronto-Dominion, in search of opportunities in the United States, acquired majority ownership of Banknorth, the US company becoming TD Banknorth in 2007. In September 2009, all Commerce Bank “stores” and all TD Banknorth branches had been renamed “TD Bank, NA” Subsequent acquisitions in September 2010 in North and South Carolina expanded the reach of TD Bank, NA branches, which now stretched from Florida to Maine. It should be noted that TD Bank, NA, adopted the slogan in 2009 that it was “America’s Most Convenient Bank”.

So, to answer the second question posed above, TD Bank, NA, is a major financial bank in the United States that can trace its origins to the “Down-East” of the rocky shores of Maine as an institution of ‘saving. As of 2009, he “OWNED” the remains of “Mc-Bank”. It has long been recognized that a key factor in mergers or acquisitions is the divergence (if any) between the cultures of the merging entities and the ability to manage to overcome that divergence. Obviously, TD Bank, NA’s “Banknorth” origins are surprisingly different from the entrepreneurial “fast food” focus of “Mc-Bank”. The Harvard Business Review published a lengthy analysis of Amazon’s acquisition of Whole Foods in 2017 in the October 2, 2018 issue, “One Reason Mergers Fail: The Two Cultures Aren’t Compatible.” The more encyclopedic work of March 26, 2019, by Oliver Engert, Becky Kaetzler, Kameron Kordestani and Andy MacLean of McKinsey & Company, titled “Organizational Culture in Mergers: Addressing the Unseen Forces”, defines culture, “… as the vision or mission that drives a business, the values ​​that guide the behavior of its employees, and the management practices, work standards and mindsets that characterize the way work is actually done.

Bank culture and mergers

On August 19, 2020, TD Bank, NA, accepted a consent order from the Bureau of Consumer Financial Protection (“CFPB”) requiring the bank to pay the office (or its agent), within ten days, at a time civil fine of $ 25 million penalty AND $ 97 million to fund “repair payments” to approximately 1.42 million current and former customers of the bank, who from January 1, 2014 to December 31, 2018 were billed wrongly overdraft fees in violation of the Electronic Funds Transfer Act and Regulations E. In addition, it was determined that the bank had breached its obligations under the Fair Credit Reporting Act by refusing to investigate on customer complaints about errors in information provided to credit bureaus. Regarding the breaches of Regulation E, it has been found that the bank has repeatedly falsely described the scope, timing and costs of the various overdraft protection plans. The bank only provided clients with a full description of overdraft plans and their costs after a client orally “subscribed” to a particular coverage (or declined it), although Regulation E requires it. written consent of a client to pay overdraft fees BEFORE such fees may be charged. In fact, in off-site locations, and not in a regular “store”, bank employees often failed to bring overdraft coverage reporting forms to locations where these employees sought to enroll new customers. The Consent Ordinance also prohibits the bank from requesting any tax reduction or compensation due to the civil pecuniary penalty, and prohibits the bank from referring to the payment of this penalty in response to any other civil litigation brought by a bank customer against the bank (for example, a libel action based on the bank’s refusal to investigate a customer’s allegations of errors regarding credit information provided by the bank to a branch office credit assessment). One cannot help but note, given the institutional histories described above, that the CFPB in the consent order consistently cites bank employees who refer to the “stores” of the bank.

The Fair Credit Reporting Act, which dates from 1970, has long required credit information providers to investigate and respond to allegations of error in a timely manner. Regulation E for overdraft and fee protection plans dates from 2005. Yet these were apparently “foreign requirements” for the staff and management of TD Bank, NA, a kind of unexpected willful blindness in a large United States in terms of deposits and eighth in terms of total assets), a sophisticated financial institution that presents itself as dealing with individual clients; that is, a really large retail bank. Did the breaches of compliance – including glaring inaccuracies – stem from cultural disparities between Commerce Bank and Banknorth? That’s a question only careful sociological and economic analysis can answer, but the consent order of August 19, 2020 certainly suggests that bank examiners should look beyond the immediacy of financial records and statements.

© 2021 Norris McLaughlin PA, All rights reservedRevue nationale de droit, volume X, number 280


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