Compliance

Beware ATM Fee Lawsuits

CUs must know how to mitigate the risk of Reg E disclosure violations following a flood of lawsuits.

January 02, 2012
KEYWORDS atms , regulation
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A recent wave of lawsuits has been filed this month against credit unions for failing to properly disclose ATM fees, CUNA reports.

The recent lawsuits, filed by New York resident Don Anderson against credit unions and banks in Texas and Louisiana, allege violations of Electronic Funds Transfer Act (Regulation E) disclosure provisions.

When credit unions charge a fee to a consumer using a non-credit union ATM network card or debit card, Section 205.16 of this act requires:

  • Posting a sign in a prominent and conspicuous location on or at every ATM the credit union owns or operates stating that a fee will (or may) apply. It’s not necessary to include the amount of the fee on the sign; and
  • Disclosing the fee on the terminal screen or providing a paper notice before the consumer commits to paying the fee.

Section 205.9 of Reg E also requires the amount of the fee to appear on the receipt. A violation could result in a fine of up to $500,000 plus costs and attorney fees based on a class action filing.

The lawsuits typically involve missing signage on or at the ATM and/or incorrect fees disclosed on the sign at the ATM. Plus, many of these lawsuits involve remote ATMs serviced by third-party vendors.

Subscribe to Credit Union MagazineThese lawsuits can be avoided simply by inspecting the ATMs regularly to ensure the fee signage is intact. People sometimes will remove or deface these signs.

Credit unions may also avoid these lawsuits by not placing the precise fee amount on the sign itself, because the regulation doesn’t require doing so.

Risk-mitigation strategies

Last summer, CUNA Mutual Group released alerts addressing earlier waves of similar lawsuits. CUNA and CUNA Mutual are working diligently with legislators and regulatory agencies to facilitate legislative changes to Reg E’s requirement that signs be placed on or at every ATM.

This is a redundancy because the consumer also receives the notice on the ATM screen before completing the transaction.

CUNA and CUNA Mutual have asked the Consumer Financial Protection Bureau to address this situation, but there are no guarantees of legislative or regulatory relief at this point.

In the meantime, CUNA and CUNA Mutual urge credit unions to implement these risk-mitigation strategies:

  • Develop and maintain written procedures for inspecting all of the credit union’s ATMs regularly to ensure the ATM fee signs are intact. ATMs should be inspected at least weekly or when the ATM is serviced—whichever provides for more frequent inspections.
  • Consider photographing the ATM each time it’s inspected for the signage, maintain a log to track all ATM inspections, and have management review the log periodically to ensure accuracy. The log should contain information including the date and location of the inspection, status of ATM fee sign/notice (missing or present), action taken (e.g., replaced sign, etc.), and the name or initials of the employee performing the inspections;
  • Require third-party ATM servicing vendors, either by contract or through a maintenance agreement, to inspect ATMs for the fee signage; and
  • Replace missing signage replaced immediately.

To ensure ATMs meet Regulation E’s signage requirements, credit unions should:

  • Maintain a supply of signs/stickers to replace any that have been defaced or removed;
  • Test the ATMs periodically using a non-credit union issued ATM network card or debit card to confirm the fee appears on the screen and on the transaction receipt;
  • Consider placing a general signage notice on the ATM stating, “A fee will [or may] apply,” or specify transactions for which a fee will apply, if applicable;
  • Confirm ATM fees are properly disclosed on the ATM machine, on the screen, and on the transaction receipt; and
  • Ensure ATM fee notice signs aren’t damaged or removed during ATM remodeling projects. If that’s not possible, place the fee notice sign in a temporary alternate location on or at the ATM in a prominent and conspicuous manner.

Return the sign to its permanent location once remodeling is complete.

Questions? Contact Brad Mundine, senior manager, Credit Union Protection Risk Management for CUNA Mutual Group, or CUNA’s compliance staff.

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