Several community banks in North and South Carolina became the targets of class action lawsuits filed earlier this week.  The plaintiffs in these lawsuits allege that the banks named in the complaints failed to provide proper notices about fees on ATMs.  More specifically, the complaints allege that the banks failed to comply with provisions of the Electronic Funds Transfer Act ("EFTA") and Regulation E, which implements the EFTA, requiring ATM operators who impose a fee on a consumer in connection with an electronic fund transfer to provide (1) notice of the fact that a fee is being imposed and (2) the amount of the fee.  Not only must this notice appear on the ATM screen ("on the screen" notice), or on a paper notice issued from the ATM, but the notice must also be placed on an external sign on or at the ATM itself ("on the machine" notice).  The lawsuits challenge the lack of "on the machine" notices.

The primary allegation in the North Carolina and South Carolina cases is that the ATMs lacked the proper external signage.  The plaintiffs in each case seek to represent a class of similarly situated persons, described as all persons who were charged a “terminal owner fee” when making an electronic fund transfer or balance inquiry at defendants' ATMs, where no “on the machine” notice was posted.  Class members would be identified using the ATM operator’s records.  Because the statute of limitations for these claims is one year, an ATM operator could be liable for all such transactions that occurred over the previous twelve months.

The costs of non-compliance could be substantial.  The EFTA provides that a non-compliant ATM operator may be liable for any actual damage sustained by a consumer plus a statutory penalty of up to $1,000.  With respect to class actions, an ATM operator could be liable for the lesser of $500,000 or 1% of the net worth of the operator (as well as court costs and attorney's fees).

Although the EFTA imposes a strict liability standard on ATM operators, there are certain defenses that may be applicable. For example, if an ATM operator's "on the machine" notice was removed by another person, the ATM operator has a defense to claims for damages.  Additionally, the statute includes a "bona fide error" defense that allows a defendant to avoid liability by proving that the violation was not intentional and occurred notwithstanding the maintenance of procedures reasonably adapted to avoid the error.  Similarly, an ATM operator's good faith compliance with any rule, regulation, or interpretation by the Board of Governors of the Federal Reserve Board is a defense to claims arising under the EFTA. 

These cases follow a trend of such lawsuits that has been growing since 2009.  We have identified settlements around the country, representing a broad range of $50,000 to $470,000, depending apparently on the size of the financial institution and the number of ATMs involved.

For compliance purposes, it is important for ATM operators who have any concerns about their external or "on the screen" fee notices to consult experienced legal counsel to help guide them through the nuances of the EFTA's fee notice provisions.  Further, to avoid compliance issues in the future, ATM operators should inspect all ATMs to verify that they contain appropriate "on the machine" and "on the screen" notices and should maintain current photographic evidence that such notices are in place.