TD LoC Fee

January 30th, 2009 by Potato

In a brazen move, TD has introduced an inactivity fee for unsecured lines of credit, and apparently is also pushing through a rate increase. Despite having a LoC at TD myself, I haven’t received any notification of this from TD yet.

From a customer care point of view, the inactivity fee is bad optics — LoCs were marketed as accounts with no fees that would be there when you needed them, that you could open and have just in case… then bam! as soon as the economy starts to sour and people might actually need to use them, they get pricey. The fee is targeting those people who don’t need the credit and so are arguably the smallest credit risk! Personally, I’d be more annoyed at a rate hike since the fee is easy enough to get around (move money out for a day, put it back in the next, pay a cent in interest, and you save the $35 fee).

But like many things going on these days, I don’t think this is exactly what it appears on the surface. This to me is a fee that will never be collected. It’s unfortunate that they’ve chosen to do things this way, but this fee has been designed to infuriate people into closing their inactive LoCs. TD wasn’t making any money from people who weren’t actively borrowing and racking up interest charges, but they had to keep some capital reserve on hand in case they did. And lately they (and the other banks) have had to raise capital at some pretty costly rates to shore up their ratios, and the big increase in default rates coming down the pipeline hasn’t even hit yet. So it just made sense to try to convince those people to close their accounts, and a “eat shit and have a nice day now” letter in the mail is one way to achieve that. Heck, just look at the number of people around the blogosphere closing their LoCs in outrage. Of course if they do find a need for that loan, they’ll have to reapply from scratch, and the rates offered nowadays can’t be pretty. After three rounds of negotiations with TD last summer I managed to get Prime+1% on an unsecured LoC — I doubt I could get that on a secured loan these days.

Edit: And just as I get around to posting this after writing it two days ago, I find out that TD has cancelled their plans for the fee, citing negative feedback. I suppose I was at least correct in that this was a fee that would never be collected.

Comments are closed.