Compliance Update: Does your ATM have the required on-machine fee notice?

February 17, 2011 at 4:56 pm Leave a comment

(Original E-Alert dated February 16, 2010)

Class action lawsuits have been filed across the country against financial institutions and other ATM operators for failure to display the required on-machine notice on ATMs. Although a number of articles and alerts have been written on this topic, it appears that a number of ATM operators still do not display the required notices on their ATMs. We have seen a flurry of these lawsuits recently in Missouri and Kansas.

The Electronic Fund Transfer Act (15 USC 1693b(d)) and Regulation E (12 CFR 205.16) require ATM operators that impose a fee on a consumer for initiating an electronic fund transfer or balance inquiry to provide notice that a fee will be imposed for that service. To meet this notice requirement, an ATM operator must have both (1) an “on-machine” notice that a fee will or may be imposed for providing electronic fund transfer services or for a balance inquiry and (2) a notice on the ATM screen or on paper before the consumer is committed to paying the fee. Most ATM operators properly display the on-screen/paper notice, but the failure also to display the on-machine notice has subjected a number of ATM operators to lawsuits.

Regulation E permits an ATM operator to impose a fee on a consumer for initiating an electronic fund transfer or balance inquiry only if the consumer is provided both the on-machine and on-screen/paper notices. The fact that the consumer agreed to the fee on-screen does not, by itself, relieve the ATM operator from liability. The ATM operator may, however, have other defenses (discussed below).

What should you do to prevent being a target of this type of class action lawsuit?

  • Immediately check your ATMs to ensure they display the required notice. The on-machine notice need not (and should not) disclose the amount of the fee, although the amount of the fee must be disclosed in the on-screen/paper notice.
  • As ATM stickers can be vandalized (covered up or peeled off), your compliance program should include a policy of inspecting your institution’s ATMs on a periodic basis (for example, whenever your ATM is serviced) and documenting that each ATM contains the required notice. We recommend that ATM operators maintain a supply of on-machine stickers to immediately replace missing or vandalized stickers.

What is the potential liability for a class action lawsuit under the EFTA?
Some, but not all, of these lawsuits have been filed for the nuisance value and the hope of a quick settlement. The Electronic Funds Transfer Act (15 USC 1693m(a)) caps class action damages at the lesser of $500,000 or 1% of the net worth of the defendant (plus attorney fees and costs). The cost of litigation, coupled with the potential class action damages, can make these lawsuits an expensive proposition for community banks.

Are there any defenses?
There are a number a defenses that can be raised by an ATM operator who is the target of an ATM fee notice class action lawsuit. ATM operators are not liable under the EFTA if:

  • The on-machine notice was removed, damaged or altered by any person other than the ATM operator (15 USC 1693h(d));
  • The alleged violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error (15 USC 1693m(c)); or
  • The bank can demonstrate a good faith attempt at compliance with any rule, regulation, or interpretation by the Board of Governors of the Federal Reserve Board (15 USC 1693m(d)(1)).

In Dover v. Union Building and Loan Savings Bank, 2009 WL 212355, Union was able to avoid liability for failure to post the on-machine notice by asserting that it was entitled to the good faith defense. Specifically, it argued that its ATM conformed with the FDIC’s Compliance Examination Handbook by providing the on-screen notice. This argument was based on a prior version of the FDIC’s handbook that suggested that the bank could comply with the Regulation E fee notice requirement by providing either the on-screen/paper notice or the on-machine notice. The FDIC handbook has since been revised. Union also asserted that its fee notice was removed, damaged or altered, but it was not necessary for the court to reach this alternative defense.

Take Action Now!
Don’t subject your institution to a class action lawsuit for failure to post the required on-machine fee notice. Check your institution’s ATMs now and continue to inspect them periodically for compliance with this rule. 

Class action lawsuits have been filed across the country against financial institutions and other ATM operators for failure to display the required on-machine notice on ATMs. Although a number of articles and alerts have been written on this topic, it appears that a number of ATM operators still do not display the required notices on their ATMs. We have seen a flurry of these lawsuits recently in Missouri and Kansas.

The Electronic Fund Transfer Act (15 USC 1693b(d)) and Regulation E (12 CFR 205.16) require ATM operators that impose a fee on a consumer for initiating an electronic fund transfer or balance inquiry to provide notice that a fee will be imposed for that service. To meet this notice requirement, an ATM operator must have both (1) an “on-machine” notice that a fee will or may be imposed for providing electronic fund transfer services or for a balance inquiry and (2) a notice on the ATM screen or on paper before the consumer is committed to paying the fee. Most ATM operators properly display the on-screen/paper notice, but the failure also to display the on-machine notice has subjected a number of ATM operators to lawsuits.

Regulation E permits an ATM operator to impose a fee on a consumer for initiating an electronic fund transfer or balance inquiry only if the consumer is provided both the on-machine and on-screen/paper notices. The fact that the consumer agreed to the fee on-screen does not, by itself, relieve the ATM operator from liability. The ATM operator may, however, have other defenses (discussed below).

What should you do to prevent being a target of this type of class action lawsuit?

  • Immediately check your ATMs to ensure they display the required notice. The on-machine notice need not (and should not) disclose the amount of the fee, although the amount of the fee must be disclosed in the on-screen/paper notice.
  • As ATM stickers can be vandalized (covered up or peeled off), your compliance program should include a policy of inspecting your institution’s ATMs on a periodic basis (for example, whenever your ATM is serviced) and documenting that each ATM contains the required notice. We recommend that ATM operators maintain a supply of on-machine stickers to immediately replace missing or vandalized stickers.

What is the potential liability for a class action lawsuit under the EFTA?
Some, but not all, of these lawsuits have been filed for the nuisance value and the hope of a quick settlement. The Electronic Funds Transfer Act (15 USC 1693m(a)) caps class action damages at the lesser of $500,000 or 1% of the net worth of the defendant (plus attorney fees and costs). The cost of litigation, coupled with the potential class action damages, can make these lawsuits an expensive proposition for community banks.

Are there any defenses?
There are a number a defenses that can be raised by an ATM operator who is the target of an ATM fee notice class action lawsuit. ATM operators are not liable under the EFTA if:

  • The on-machine notice was removed, damaged or altered by any person other than the ATM operator (15 USC 1693h(d));
  • The alleged violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error (15 USC 1693m(c)); or
  • The bank can demonstrate a good faith attempt at compliance with any rule, regulation, or interpretation by the Board of Governors of the Federal Reserve Board (15 USC 1693m(d)(1)).

In Dover v. Union Building and Loan Savings Bank, 2009 WL 212355, Union was able to avoid liability for failure to post the on-machine notice by asserting that it was entitled to the good faith defense. Specifically, it argued that its ATM conformed with the FDIC’s Compliance Examination Handbook by providing the on-screen notice. This argument was based on a prior version of the FDIC’s handbook that suggested that the bank could comply with the Regulation E fee notice requirement by providing either the on-screen/paper notice or the on-machine notice. The FDIC handbook has since been revised. Union also asserted that its fee notice was removed, damaged or altered, but it was not necessary for the court to reach this alternative defense.

Take Action Now!
Don’t subject your institution to a class action lawsuit for failure to post the required on-machine fee notice. Check your institution’s ATMs now and continue to inspect them periodically for compliance with this rule.

Entry filed under: Client Alerts.

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