In the last several weeks, we have seen a dramatic increase in the number of class action lawsuits filed against financial institutions and other entities resulting from their operation of automated teller machines (ATMs). These lawsuits have been filed by plaintiffs' firms located in Dallas and Memphis and the suits have been filed in the Southeast, primarily Texas, Mississippi, Alabama and Tennessee. The suits seek damages for alleged violations of the notice requirements under the Electronic Fund Transfer Act, 15 U.S.C § 1693, et seq., and its implementing regulations 12 C.F.R. Part 205 (collectively, the EFTA). The purported violations involve the failure of an ATM operator to provide consumers with the required notice of the fee that would be charged for the use of the ATM.

EFTA Notice Requirements

Under the EFTA, operators of ATMs who charge consumers a fee for electronic fund transfer services or balance inquiries must provide notice of that fact along with the amount of that fee. The notice required under the EFTA must be: (1) clear and readily understandable; (2) posted in a "prominent and conspicuous location on or at the automated teller machine;" and (3) "on the screen of the automated teller machine, or on a paper notice issued from such machine" before the consumer is irrevocably committed to completing the transaction.

Potential Liability for Violations of the EFTA

The EFTA provides that an ATM operator may be liable to a consumer for actual damages (the amount of the transaction fee) plus a statutory amount of not less than $100 and not greater than $1,000 in individual actions. However, in a class action lawsuit, there is no minimum recovery amount applicable to individual class members, and the total permissible recovery is the lesser of $500,000 or 1% of the ATM operator’s net worth. Moreover, in the event plaintiff’s counsel is successful, the EFTA provides for the recovery of "reasonable" attorneys' fees.

Regulatory compliance is always important and noncompliance can result in adverse consequences. However, certain alleged violations can take the matter outside the regulatory environment and place it in the judicial arena. That can result in legal fees, negative publicity and, in the worst case, damages. The EFTA notice requirements apply to "Automated Teller Machine operators," defined as "any person that operates an automated teller machine at which a consumer initiates an electronic fund transfer or a balance inquiry and that does not hold the account to or from which the transfer is made, or about which an inquiry is made." Although financial institutions that do not actually operate a particular ATM that their customer uses are not subject to the requirement, they can still be named in a lawsuit and incur the costs of extricating themselves from the litigation. Consequently, it is in the interests of all financial institutions that operate ATMs and receive fees from consumers to examine their policies and procedures to ensure compliance with the EFTA’s notice requirements.