Compliance Bulletin

Regulation E ATM Disclosure Litigation Threat
February 2, 2011

Banks and other owners and operators of automated teller machines should ensure that the appropriate Regulation E disclosure is securely affixed to their machines.

 Will Stern, partner with the law firm of Morrison & Foerster and member of the CBA Legal Affairs Committee, has alerted CBA of a rash of law suits against proprietors of ATMs, including banks in California, solely on the basis of the missing disclosure. 12 CFR Section 205.16 sets forth the disclosure requirements related to ATMs, including a physical disclosure at the ATM itself, which is the subject of these suits. So far, the suits focus only on the absence of the required disclosures and not on their content or location. Nor are the attorneys challenging the screen and paper notices. If the disclosures are not tamper-resistant, then it may be prudent for the bank to inspect the machines periodically to ensure they haven’t been removed.

From a sample of the settlements entered in these suits so far, banks and other operators have been liable for up to $500,000, and there is a dearth of effective defenses against missing disclosures. For your reference, here is the text of 12 CFR Section 205.16:

Sec. 205.16 Disclosures at automated teller machines.

(a) Definition. Automated teller machine operator means 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.
(b) General. An automated teller machine operator that imposes a fee on a consumer for initiating an electronic fund transfer or a balance inquiry shall:
(1) Provide notice that a fee will be imposed for providing electronic fund transfer services or a balance inquiry; and
(2) Disclose the amount of the fee.
© Notice requirement. To meet the requirements of paragraph (b) of this section, an automated teller machine operator must comply with the following:
(1) On the machine. Post in a prominent and conspicuous location on or at the automated teller machine a notice that:
(i) A fee will be imposed for providing electronic fund transfer services or for a balance inquiry; or
(ii) A fee may be imposed for providing electronic fund transfer services or for a balance inquiry, but the notice in this paragraph (c)(1)(ii) may be substituted for the notice in paragraph (c)(1)(i) only if there are circumstances under which a fee will not be imposed for such services; and
(2) Screen or paper notice. Provide the notice required by paragraphs (b)(1) and (b)(2) of this section either by showing it on the screen of the automated teller machine or by providing it on paper, before the consumer is committed to paying a fee.
(d) Temporary exemption. Through December 31, 2004, the notice requirement in paragraph (c)(2) of this section does not apply to any automated teller machine that lacks the technical capability to provide such information.
(e) Imposition of fee. An automated teller machine operator may impose a fee on a consumer for initiating an electronic fund transfer or a balance inquiry only if
(1) The consumer is provided the notices required under paragraph © of this section, and
(2) The consumer elects to continue the transaction or inquiry after receiving such notices.

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.

© This CBA Regulatory Compliance Bulletin is copyrighted by the California Bankers Association, and may not be reproduced or distributed without the prior written consent of CBA.

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