Legal Status of ATM Fee Challenges

This page is a brief summary of the legal status of bank industry challenges to the ATM Surcharge prohibitions that have been adopted nationwide to-date. At the bottom of the page we have reprinted the relevant section of the federal Electronic Funds Transfer Act, which grants states (and municipalities) this authority. For more current updates, check the New Rules Project's ATM pages or its ATM Surcharge Bulletin archives

San Francisco and Santa Monica
Iowa
Connecticut
Woodbridge, and Newark, NJ

25 Oct 02 Ninth Circuit affirms anti-consumer, anti-state's rights, anti-local rights decision by lower court-- overturns ATM ordinances (link to court decision), rejects PIRG-backed ATM surcharge fee bans in San Francisco and Santa Monica. This disappointing decision holds that cities (and states) have no right to regulate unfair fees if imposed by "national" banks. Banks were aided and abetted by Office of Comptroller of Currency, the nation's chief bank regulator, which has dual promotional role that often gets in the way of its analysis of what is good public policy. (17 Jan 02) Attorneys for the cities of Santa Monica and San Francisco, supported by an amicus brief from CALPIRG and other leading groups urged the US 9th Circuit Court of Appeals to reinstate their local ATM surcharge bans. The Cities of Santa Monica and San Francisco had asked the 9th Circuit Court of Appeals to overturn the ruling of Judge Vaughn Walker overturning their ATM surcharge bans. CALPIRG and other leading groups have filed a brief in support of the appeal. On 3 July 2000, at trial, Judge Walker overturned the San Francisco and Santa Monica ordinances. His opinion is now available. He had previously ordered a preliminary injunction on 15 November 1999 preventing enforcement of their surcharge bans. Here is the opening brief of Santa Monica in that case.. It outlines the key legal issues. Significantly, the Attorney General of California, joined by 8 other states (Connecticut, Iowa, Minnesota, Nevada, New York, Oregon, Washington, and West Virginia) and two territories, filed a strong brief in support of the cities when they appealed the injunction, although that appeal was rejected. Here is the Attorneys General press release. CALPIRG and other consumer groups in California also supported the appeal with an amicus brief (contact USPIRG for information about obtaining copies).

The cities, states and consumer groups strongly argue that the Electronic Funds Transfer Act (EFTA) - which does not pre-empt states and cities from enacting stronger consumer protections than federal law provides - is the applicable law to govern ATMs and ATM surcharge bans. In 1990, the 9th Circuit ruled on a similar case and agreed that the EFTA governs ATMs.

The cities, the states and consumer groups also argue that the district court erred in relying on opinion letters of the OCC.

Background: On 11/15/99, Federal District Court Judge Vaughn Walker issued a temporary injunction against enforcement of Proposition F, an ATM Surcharge-ban law which San Francisco voters approved by 66%-34% on November 2nd, 1999. Agreeing with Bank of America and Wells Fargo, who sued the city the day after the election, Judge Walker suspended enforcement of Prop. F because he accepted the bank argument that only the National Bank Act governs ATM transactions. The cities appealed the injunction and were denied their appeal by the Ninth Circuit Court of Appeals. On 3 July 2000, at trial, Judge Walker overturned the San Francisco and Santa Monica ordinances. His opinion is available. The cities have appealed to the Ninth Circuit.

Santa Monica - The Santa Monica City Council approved the nation's first city law barring ATM surcharges on October 10, 1999 and the law took effect on November 11, 1999. In his 11/15/99 decision, Judge Walker also temporarily suspended enforcement of Santa Monica's ATM Ordinance.

In his ruling, Judge Walker did take the extraordinary step of requiring that Bank of America, Wells Fargo, and other banks that impose surcharges in San Francisco and Santa Monica during the duration of the legal battle must track who they surcharge and store the accumulated funds in escrow. In the event that the ATM laws are eventually upheld, the banks will be required to refund these illegal fees to the consumers who paid them and direct leftover funds to the cities. Read Judge Walker's injunction decision and a portion of the transcript describing the tracking requirements. in the ATM case.

Connecticut - On 21 December 1999, Connecticut's State Supreme Court overturned Connecticut' s ATM surcharge ban, but only on the grounds that the Banking Commissioner had misinterpreted his authority to ban surcharges, not on any national bank preemption theory. The 2000 session of the legislature considered, but did not enact, proposals to reinstate the ban by statute. The surcharge ban was the result of an order issued in 1995 by Banking Commissioner John Burke, who concluded that Connecticut's electronic funds transfer law implicitly prohibits the fees. His interpretation was challenged initially in federal court by First Union Bank and Fleet Financial Group in 1997, but the banks lost the initial case. Fleet's merger partner, BankBoston, joined the ongoing suit this year. The ATM surcharge dispute has evolved into a complex web of lawsuits, with both state and federal courts ruling on various aspects of the case, but the core issue of whether the banking commissioner's interpretation is valid remains unresolved. In June, both sides agreed to consolidate the case and allow the Connecticut Supreme Court to determine whether the surcharge ban should stand.

View the Connecticut Banking Commissioner's original order banning surcharges on the New Rules pages.

Iowa - Like Connecticut, Iowa has outlawed ATM surcharges since 1995 by administrative order of the state's Banking Commissioner. The Iowa ATM surcharge ban has withstood multiple legal challenges by big out-of-state banks over the years and remains in effect today, despite press releases from the bankers. The Iowa Bankers Association and community banks and credit unions throughout the state strongly support retaining the ATM surcharge ban to protect against the unfair big bank competitive advantage that ATM surcharges allow. In August, 1999 the 8th Circuit Court of Appeals by a 2-1 vote overturned an Iowa federal court ruling in a non-ATM surcharge case. The 8th Circuit Court overturned Iowa's Electronic Fund Transfer Act (EFTA) but not on the basis of the ATM surcharge ban. On 2 February 1999, Attorney General Tom Miller filed a petition asking the Supreme Court to review the case. Here is his press release. The words "ATM surcharge" were not mentioned once in the 8th Circuit decision. In Iowa, the associations representing community-based banks, and credit unions, have supported the state, not the national banks, in court. In 1999, the Supreme Court denied the petition to review the 8th Circuit decision. Again, no banks in Ioaw are surcharging. The bank legal challenge did not extend to the surcharge ban.

While there will likely be further litigation in Iowa by big banks over ATM surcharges, the ban remains in full effect today.

Woodbridge, and Newark, NJ: On 15 February, 1999, Woodbridge, NJ's City Council banned ATM surcharges on a 9-0 vote. The banks immediately obtained an injunction blocking enforcement of the law. On 10 May, 200, Newark, NJ banned surcharges. Both bans have been blocked by court injunction.

The New Rules Project Resources On ATMs: Many of the links above are to the excellent New Rules project of the Institute for Local Self-Reliance. View a detailed fact sheet prepared by the New Rules Project that includes copies of the Connecticut Banking Commissioner's ATM surcharge ban opinion, the Iowa banking superintendent's order, and a proposed federal ban.

The federal Electronic Funds Transfer Act: [15 USC 1693] provides that states can pass stronger laws regulating ATM and other elctronic transfers. Its preemption provision (relationship to state laws) is reprinted below.

TITLE 15--COMMERCE AND TRADE CHAPTER 41--CONSUMER CREDIT PROTECTION SUBCHAPTER VI--ELECTRONIC FUND TRANSFERS

Sec. 1693q. Relation to State laws This subchapter does not annul, alter, or affect the laws of any State relating to electronic fund transfers, except to the extent that those laws are inconsistent with the provisions of this subchapter, and then only to the extent of the inconsistency. A State law is not inconsistent with this subchapter if the protection such law affords any consumer is greater than the protection afforded by this subchapter. The Board shall, upon its own motion or upon the request of any financial institution, State, or other interested party, submitted in accordance with procedures prescribed in regulations of the Board, determine whether a State requirement is inconsistent or affords greater protection. If the Board determines that a State requirement is inconsistent, financial institutions shall incur no liability under the law of that State for a good faith failure to comply with that law, notwithstanding that such determination is subsequently amended, rescinded, or determined by judicial or other authority to be invalid for any reason. This subchapter does not extend the applicability of any such law to any class of persons or transactions to which it would not otherwise apply.(Pub. L. 90-321, title IX, Sec. 919, as added Pub. L. 95-630, title XX, Sec. 2001, Nov. 10, 1978, 92 Stat. 3741.)