In this challenging economy, unfortunately some clever members of the plaintiff’s bar are seeking ways to “make a quick buck” at the expense of financial institutions that have neglected to maintain adequate ATM fee disclosures. Recently some financial institutions have become the target of class-action lawsuits for failure to provide proper ATM fee disclosures. We prepared this article in an effort to help others avoid a similar fate. By alerting you to certain ATM fee disclosure laws, we hope that you can use this knowledge to help minimize your bank’s litigation risk.
Under Regulation E (Electronic Fund Transfer Act [“EFTA”]), every ATM operator must provide certain specific disclosures at each ATM regarding fees for ATM transactions. If an ATM operator fails to provide the proper ATM notices, the ATM operator could be the subject of a class-action lawsuit. In such case, the ATM operator can be liable for damages of up to the lesser of $500,000 or 1 percent of the net worth of the institution.1 Therefore, it is imperative for ATM operators to regularly review their ATM fee disclosures for compliance with Regulation E.
Under Regulation E, the term “ATM operator” means “any person that operates an automated teller machine at which a consumer initiates an electronic funds 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.” The term includes virtually any financial institution that operates an ATM and that processes transactions for accounts not held at that institution.
For you to comply with Regulation E and reduce your liability with respect to ATM fee disclosures, we recommend that financial institutions adopt the following three rules. Keep in mind that these are not alternative disclosure methods: Regulation E requires compliance with each disclosure method described below.
1) Notice on the ATM machine. A notice must be posted on or at the ATM machine in a prominent and conspicuous location. This notice must state that “a fee will be imposed for providing electronic fund transfer services.” However, if there are certain circumstances in which a fee will not be imposed, such as a balance inquiry, the notice can state that a fee “may be imposed” rather than “will be imposed.”
2) Onscreen or on paper notice. A notice must be provided on the ATM screen or on paper prior to the consumer completing the ATM transaction. The notice must include the language in number one above, and it must state the actual fee that will be assessed if the transaction is completed. The onscreen notice must appear for a reasonable duration, and the consumer must have the ability to cancel the transaction and avoid the fee after reading this onscreen or paper notice (and before completing the transaction).
3) Fee disclosure on receipt. An ATM operator must disclose the fee on the receipt generated upon completion of the ATM transaction if the fee is included in the transaction amount. The terminal receipt itself is not an alternative to the onscreen or paper notice.
In addition to making these required disclosures, ATM operators should implement procedures to periodically monitor ATM disclosures, especially with respect to the notice that is posted on or at the ATM machine. We recommend that financial institutions contact third-party servicers to ensure that monitoring ATM fee disclosures is a part of ordinary ATM maintenance procedures. In addition, we recommend that financial institutions designate certain employees to regularly monitor disclosures at each ATM location. Further, in order to deter vandals from stealing or defacing notices at ATMs, ATM operators should consider placing ATM disclosures under glass or other clear cover.
Also, ATM operators should be aware of a little-known defense that can absolve them of liability in the event they are faced with a claim for violation of Regulation E. Is the ATM operator liable under Regulation E if the fee notice is removed from the ATM due to vandalism? No, so long as the notice was properly displayed prior to the vandalism and a third party was responsible for the vandalism. Under Section 705 of the Gramm-Leach-Bliley Act, ATM operators are not liable for failing to comply with the requirement to post a notice on or at the ATM if the notice is subsequently removed, damaged or altered by any person other than the ATM operator. Therefore, we recommend that ATM operators maintain a file with current pictures of all ATM fee disclosure notices to protect the institutions if vandals later damage or remove the notices. In order to be able to use this defense, the ATM operator must be able to demonstrate that the required notice had been posted.
In summary, ATM providers should implement and monitor three ATM fee disclosures under Regulation E: (1) notice on or at the ATM, (2) onscreen or paper notice prior to completing the ATM transaction and (3) disclosure of any fee on the post-transaction receipt. Considering the potential ramifications of violating Regulation E, including the cost of defending a class-action lawsuit, financial institutions should establish procedures to regularly monitor ATM notices. We recommend that ATM operators perform internal monitoring as well as external monitoring through third-party ATM servicers. We are happy to provide assistance to you with this process should you need it.