‘Bait-and-Switch’: TD Bank ‘Refuses’ to Allow Secured Credit Card Holders to ‘Graduate’ to Unsecured Cards, Lawsuit Says [UPDATE]

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A proposed class action alleges TD Bank has violated its contracts with secured credit card holders by refusing to allow them to “graduate” to an unsecured card, even if they remain in good standing for the required seven consecutive billing cycles. 

The 22-page lawsuit claims TD’s own contractual documents reveal the bank has pulled “a classic bait-and-switch scheme” on card holders such as the plaintiffs, who are not made aware upon initially signing up for a secured credit card that there exists a two-year waiting period before they can effectively level up. 

“This two-year waiting period is spelled out in a much less prominent location on the Bank’s website,” the complaint, filed in New Jersey federal court, reads, alleging TD has gained an unfair competitive advantage by luring customers away from “other, better credit card options.”

According to the 22-page lawsuit, TD Bank offers a secured credit card to customers who need to build or rebuild their credit score. The card requires the payment of a security deposit, which TD holds as collateral in a savings account to “secure” the credit line for the card, the case says. Those who apply for and are issued a TD secured card are also required by the bank to open a TD Simple Savings Account to hold their security deposit, and are given 15 days to deposit the funds into the account, the suit adds. 

In effect, TD, as the issuer of the secured credit card, incurs no risk because funds are available in the customer’s savings account up to the amount of the credit limit on the card, the lawsuit says. 

In its contractual documents and online, TD relays that secured credit card users who keep the card in good standing for seven straight billing cycles can “graduate” to an unsecured card, the suit states. Per the case, “graduation” to an unsecured TD credit card means a consumer will regain control of the funds held in security in the TD Simple Savings account and be entitled to a prorated refund of the annual fee they were charged for their secured credit card, among other benefits. 

According to the lawsuit, however, TD Bank refuses to allow customers to “graduate” from a secured to unsecured credit card, even if they’re able to keep the card in good standing for seven consecutive billing cycles. The case says the plaintiffs came to learn after seven months of secured credit card use that the process of graduating to an unsecured card in fact takes “far longer,” and that “hardly anyone ever graduates due to the lengthy process involving many outside factors.”

As the suit tells it, TD Bank’s handlings of the plaintiffs’ secured cards are “not isolated events,” as many customers call the bank with the same concerns before coming to learn it may be a long while before they can receive an unsecured credit card. 

Despite the fact that TD’s card agreement clearly establishes that a customer can “graduate” to an unsecured card following seven consecutive billing cycles, buried deep in the defendant’s website is the following disclosure geared toward those who already have a TD secured credit card: 

“Upon receipt of your application, we will review your TD Secured Credit Card account to ensure it has been open and in good standing for at least 24 consecutive billing cycles. We will then review your application in its entirety to determine your creditworthiness in accordance with our standard procedures for review of unsecured personal credit card applications, including, but not limited to, obtaining a credit report to determine your eligibility.”

Because this webpage is aimed at those who already have a TD secured card, but want to apply for an unsecured credit card, it is not crafted for those looking to apply for a card initially, the lawsuit clarifies. According to the complaint, this separate online disclosure “cannot trump the Card agreement,” which states that the contract “replaces any other agreement relating to your Credit Card Account that you and we made earlier or at the same time.” 

The case says TD’s conduct results in the bank continuing to exercise control over customers’ collateral funds held in a Simple Savings Account while it refuses to refund the annual fee. Broadly, TD’s conduct when it comes to secured credit card holders “robs consumers of several of the benefits of the bargain,” the lawsuit alleges.

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