A quick note from the ABA’s Unofficial “An ounce of prevention is worth several pounds of cure” Department: Right now might be an excellent time to double-check to see if your bank has a properly posted notice regarding fees on each of its ATMs. A quick look now could help insulate you later from a class-action litigation “gotcha” that has the potential to turn the Federal Reserve’s Regulation E into Regulation “Expensive.”
Electronic Fund Transfer Act (EFTA) and its implementing regulations, Regulation E, require that financial institutions must provide a disclosure regarding fees that are (or may be) associated with using an ATM. In addition to the content of that disclosure, Regulation E prescribes where the disclosures must be located.
And, thus, the source of the current “gotcha.”
Under the regulations, two forms of notice are required. The first, which most banks handle without a problem, is the “screen or paper notice.” This is the notice that pops up on the ATM screen (or appears on a slip of paper) during the transaction that alerts a customer that a specific amount will be charged for the pending transaction, allowing the consumer to cancel the transaction request to avoid the fee.
The second form of disclosure, known as the “on machine” notice, requires a bank to post a notice in a “prominent and conspicuous location” on the ATM that a fee may be imposed. It is this second set of disclosures that is generating litigation. The provisions of Regulation E governing ATM disclosures have been interpreted by the Federal Reserve as requiring both “on machine” and “screen/paper” notices. Confusingly, there was a period of time when the FDIC’s Compliance Examination Handbook suggested that providing one or the other form of disclosure, but not both, complied with the statute.
Starting late last year, plaintiffs’ attorneys began targeting banks and credit unions for violation of the ATM disclosure rules. The common thread in each of these lawsuits is that the institution operating the ATM allegedly failed to provide a proper “on machine” notice. Class action lawsuits seeking damages have been filed in Michigan, Ohio, Pennsylvania, Texas, and other jurisdictions.
Are these lawsuits legitimate concern? Most give the appearance of being filed mostly for their nuisance/settlement value. The EFTA caps class action damages at the lesser of $500,000 or 1% of the net worth of a defendant (plus attorney fees and costs). The statute also provides a defendant with excellent grounds to respond to the suit should they choose to defend rather than settle. For example, ATM operations are not liable for damages if -
• The required notice was removed as a result of vandalism or other acts by third parties;
• The alleged violation was not intentional and resulted from a bona fide error; or
• The bank can demonstrates a good faith attempt at compliance with any rule, regulation, or interpretation by the Board of Governors of the Federal Reserve Board.
These last two points are of particular importance to state chartered non-Member institutions. At least one institution has successfully raised the FDIC’s prior interpretation of the EFTA’s disclosure requirements as a defense to an alleged failure to provide “on machine” notice. See Dover v. Union Building and Loan Savings Bank.
The Bottom Line: now is a real good time to check to see if your bank has a properly posted “on machine” notice on every ATM to alert customers that they will incur a fee for any electronic fund transfer or balance inquiry. A look now may save you trouble and expense later.