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Lenders: Make Sure Non-Customers Know About ATM Fees

October 11, 2011
Business Law Advisory

An increasing number of Michigan banks and credit unions have been named as defendants in class action lawsuits for allegedly failing to post notices of non-customer fees on the exterior of their ATMs – even when that same notice is provided on the ATM screen.

The class action plaintiffs argue that the Electronic Funds Transfer Act (15 U.S.C. § 1963) requires ATM operators to post a sticker or sign with notice of the non-customer transaction fee, including the amount of the fee, on the exterior of the ATM. The class action plaintiffs argue that the exterior notice is required even if the same notice is contained on the ATM screen. Banks and their counsel find this argument (and the technical statutory language that supports this argument) maddening, because in most cases the onscreen notice does not allow the transaction to proceed unless the non-customer agrees to the fee. In almost every case, the same class action plaintiff who is suing a bank for lack of exterior notice on the machine has affirmatively agreed to the fee by pressing a button on the screen of the ATM.

Class action counsel in Illinois filed suit for lack of exterior notice in 2005, developing an argument based on a technical reading of the statute. Since that time, a series of cases have been filed in Illinois, Pennsylvania, and California. These cases first appeared in federal court in Michigan in July 2009 and have given ATM operators much reason to be nervous. Class action plaintiffs are now actively seeking ATMs that lack exterior fee stickers in the state of Michigan. At the same time, many ATM operators assumed that their onscreen notice was sufficient to meet the requirements of the Act, in some cases because of guidance from their regulators. The claims have a one-year statute of limitations, so a bank, credit union, or other ATM operator could face liability for the lack of a sticker going back one year prior to the date a lawsuit is filed.

Once a suit is filed, defending an EFTA class action claim carries significant risk. Under the Act, the ATM operator may be liable for any actual damage sustained by the plaintiff as well as a penalty of up to $1,000. However, in the case of a class action suit, the ATM operator could be liable for $500,000 or one percent of the net worth of the bank, whichever is less. In addition, a successful plaintiff is entitled to the recovery of costs and attorneys' fees. Given this potential risk, it is no surprise that EFTA class action claims are almost always settled. There are limited defenses available to ATM operators under the Act, and, in certain cases, the named plaintiff may be vulnerable to attack as an inadequate class representative. However, in the dozens and dozens of cases that have been filed, only a handful of defendants have successfully obtained a dismissal.

Now that these claims have made their way to Michigan, financial institutions should strongly consider auditing their ATM machines on an annual basis. This audit should include taking pictures of the fee sticker on each machine. In addition, it is important to understand in advance whether insurance coverage will apply to a class action suit for violation of the EFTA for lack of a fee sticker. If coverage is not available, the bank or credit union should consider discussing policy options with their insurer.

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