Andrichyn v. TD Bank, N.A.

David Andrichyn (plaintiff) and Gladstone Williams (plaintiff) (collectively, the account holders) took out short-term loans, referred to as payday loans, that had effective interest rates as high as 995 percent. The account holders had accounts with TD Bank, N.A. (defendant). To collect the loan payments, the lenders’ banks submitted electronic automated-clearing-house (ACH) debits to TD Bank for these accounts, and TD Bank processed them. The account holders sued TD Bank in federal district court, alleging that (1) the payday loans had illegally high interest rates and (2) TD Bank had violated several duties to its customers when it processed rather than rejected the ACH payment requests for these illegal loans, including breaching the terms of its contracts with the account holders. Specifically, the complaint alleged that TD Bank had breached its contracts with the account holders by violating the separate rules of the National Automated Clearing House Association (NACHA). NACHA was a private organization that set rules governing ACH transfers among participating banks. Its rules directly governed only the relationships between member banks, not between banks and customers. However, TD Bank’s agreements incorporated NACHA’s rules for ACH transfers initiated outside the United States. The complaint did not specify where all the challenged transactions originated. The complaint did allege that TD Bank had breached its agreements with the account holders by breaking two incorporated NACHA rules. The first rule required a receiving bank, like TD Bank, to accept compliant debits but permitted (rather than required) reversals in limited circumstances (for example, if an account had a negative balance). The second rule required a bank to recredit an account for an unauthorized debit if the account holder submitted a written complaint within 15 days. It was undisputed that neither account holder had made any written complaint to TD Bank within 15 days of any of the challenged payday-loan debits. TD Bank moved to dismiss the complaint, arguing it failed to state a valid claim as a matter of law.