Compliance Blog

Written by Steve Van Beek

Anthony mentioned the rash of ATM lawsuits yesterday.  In that post, he linked to a 2009 FDIC letter that discussed the ATM fee disclosure requirements in Reg E.  Here is how the FDIC letter summarizes the requirement:

"Notices must be posted both (1) in a prominent and conspicuous location on or at the automated teller machine, and (2) on the screen or on paper before the consumer is committed to paying a fee." (emphasis in original).

That doesn't seem too confusing.  So, let's take a look at the underlying regulatory requirement from Reg E - 205.16(b) & (c):

"(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.

(c) 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."  (emphasis added).

Hmm.  That looks a bit more complicated than the FDIC's summary.  It comes to the same conclusion - the notice must be both (1) on the ATM and (2) on the screen prior to the member finishing the transaction and being charged a fee.  But, look at all the legalese credit unions have to jump through to reach that conclusion.  

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Last week, I highlighted some issues with confusing regulations that were causing compliance headaches.  Monday, Anthony posted a very interesting quote from Elizabeth Warren:

"During my many visits with you, I’ve heard about the high cost of regulatory compliance. I understand the difficulty of determining what is or is not required by a particular regulation – and the costs that creates. I appreciate the widespread anxiety and frustration over the future of community banks and other small financial institutions. I know that you want a regulatory structure that doesn’t require an army of lawyers. Big banks may be able to afford to hire all those lawyers, but you cannot.

This is what you have said to me in visits all around the country: Community banks work hard to build long-term partnerships with the families they serve. Community banks didn’t cause this financial crisis. And badly done regulation can further weaken our community banks, significantly increasing the pressures they face. How should the new consumer bureau incorporate these lessons into its work?"  (emphasis added)

Here is my two-cent answer:  When small institutions are being sued around the country for ATM fee disclosures issues, it might be prudent to take a look at the underlying regulatory requirement to see if the disclosure requirements are clear and straightforward.  Credit unions want to comply with the regulations - don't make it harder than it needs to be.

Bonus Question:  Who has authority over Regulation E (which implements the Electronic Funds Transfer Act) starting on July 21, 2011?  My read indicates this power stays with the Federal Reserve. (Update on 12/13/2012: The CFPB obtained authority for Reg E on July 21, 2011.  It did not take steps to clarify the issue for credit unions).

Will the CFPB tell the Federal Reserve it should review section 205.16 of Reg E?  A clearer Regulation E will lead to less consumers being harmed and less lawsuits being filed.  That looks like an easy win-win for the CFPB.