Be aware of the ATM notice requirements of the Electronic Fund Transfer Act (the Act) and its implementing regulation located at 12 CFR 205.16 (Regulation E).
As you may know, the Act and Regulation E require ATM operators to provide two separate notices to consumers regarding the imposition of a fee for the use of an ATM. You likely are aware of the requirement of a fee disclosure on the ATM video monitor. This notice informs the individual using the ATM that a fee will be imposed, and the user is required to affirmatively indicate whether he or she accepts the fee. If the user does not affirmatively accept the fee, the transaction is cancelled and the user is not charged.
You may not realize, however, that the Act and Regulation E also require ATM operators to attach a physical placard on the ATM itself stating that a fee may be charged. If the placard is not attached, the statute prescribes that in a successful class action, plaintiffs are entitled to recover "the lesser of $500,000 or 1 per centum of the net worth of the [ATM operator]", plus attorneys' fees and costs.
This statutorily-prescribed bounty has created a strong incentive for spurious lawsuits. It also has led to situations where the placard notice affixed to the ATM has been removed and, before the ATM operator is aware of the missing placard, litigants have photographed the ATM without the placard notice and filed suit. Dozens of class action lawsuits alleging improper ATM fee notices have popped up nationwide. These cases tend to target community banks and credit unions and result in a significant payday for plaintiffs' counsel.
Legislation is currently passing through the United States Congress which would eliminate the seemingly unnecessary placard notice requirement contained in the Act and Regulation E. The repeal of the dual signage provision would stop the flood of frivolous litigation. Until this legislation is passed, however, the dual on-screen and placard notice requirements will remain in place, and ATM operators will be exposed to potential lawsuits for their failure to comply.
ATM operators should ensure placement of the requisite notices on all their ATMs, document that placement through photographs, and implement maintenance procedures to ensure compliance, i.e., some form of periodic, systematized inspections.
Best practices notwithstanding, some ATM operators will still fall victim to professional plaintiffs and their lawyers. While most community banks and credit unions can ill afford the costs of protracted class action litigation, settling these cases for nuisance value encourages the proliferation of these cases. Nonetheless, until the legislation pending in Congress is passed and takes effect, or a court invokes the EFTA's "bad faith or ... harassment" provision and requires the plaintiff to pay the defendant's attorney's fees, these cases will continue.
A number of defenses have surfaced as a result of the voluminous federal litigation relating to the Act and Regulation E. If your organization is sued, it is possible that your organization may be able to take advantage of these defenses in order to eliminate or substantially lessen any impact of the litigation.
Please feel free to contact the attorneys in the Bankruptcy and Creditors' Rights Group if you have any questions.
Bose McKinney & Evans provides a full-range of legal services to privately owned businesses, publicly traded companies, high-tech organizations and governmental entities. The firm's Web address is www.boselaw.com.