Avoid ATM Fee Disclosure Lawsuits with Proper Monitoring

An escalating number of class action lawsuits filed against credit unions for failing to comply with Regulation E requirements for disclosing ATM fees has triggered a significant risk concern for credit unions. The lawsuits allege violation of section 205.16 of the regulation, which applies when a consumer initiates an electronic funds transfer or a balance inquiry at an ATM owned or operated by an institution that does not hold the account to or from which the transfer is made, or about which an inquiry is made.

According to CUNA Mutual’s Credit Union Protection Claims division, there has been a steady stream of lawsuits reported in the last several months, with 12 new lawsuits alone reported between mid-December and the New Year.

When credit unions charge a fee to a consumer using a non-credit union ATM network card or debit card, section 205.16 of the regulation requires:

  • Posting a sign in a prominent and conspicuous location on or at every ATM owned or operated by the credit union stating that a fee will (or may) apply, and
  • Disclosing the fee on the terminal screen or paper notice before the consumer is committed to paying the fee. It is not necessary to include the amount of the fee on the sign.

Additionally, section 205.9 of the regulation requires the amount of the fee to appear on the receipt. Violation of Regulation E could result in a fine of up to $500,000 plus costs and attorney fees based on the class action filing.

The recent lawsuits involve missing signage on or at the ATM and incorrect fees disclosed on the sign at the ATM. In addition, many of the lawsuits involve remote ATMs serviced by third-party vendors. Many credit unions involved in the lawsuits erroneously believed the fee notice sign was not necessary since the fee was disclosed on the terminal screen of the ATM.

One way to avoid some of the compliance issues—brought on by changes in fees for ATM transactions—is to not place the actual fee on the sign. The regulation does not require the fee to be placed on the sign.

In addition, it is critical to develop and maintain written procedures for inspecting all of the credit union’s ATMs on a regular basis to ensure the ATM fee signs are intact. ATMs should be inspected on a weekly basis or when the ATM is serviced, whichever provides for more frequent inspections. Credit unions should also photograph each ATM at the time of inspection, maintain a log to track the inspections for all ATMs, and have management periodically review the log to ensure the inspections are properly taking place. These steps may also assist in the defense of a potential class action lawsuit.

At a minimum, the ATM inspection log should contain:

  • ATM location inspected
  • Date of inspection
  • Status of ATM fee sign/notice (missing or present)
  • Action taken (e.g., replaced sign/notice)
  • Initials of employee performing the inspections

Credit unions using a third party vendor for servicing ATMs should require the vendor (through the contract or maintenance agreement) to inspect the ATMs for the fee sign/notice. Missing signs should be replaced immediately.

To ensure ATMs meet the regulation’s signage requirements, CUNA Mutual also suggests credit unions:

  • Maintain a supply of signs/stickers to replace any that have been defaced or removed from ATMs.
  • Periodically test the ATMs using a non-credit union issued ATM network card or debit card to confirm the fee appears on the screen and the transaction receipt.
  • Consider a general signage notice stating, “A fee will [or may or specify transactions to which a fee will apply, as applicable] be imposed for providing electronic funds transfer services [or a balance inquiry].”
  • Confirm that the ATM fees are properly disclosed on the screen and transaction receipt, and the fee signage is posted on any new ATMs being deployed.
  • Ensure ATM fee notice signs are not damaged or removed during ATM remodeling projects. If not possible, the fee notice sign should be placed in a temporary alternate location on or at the ATM in a prominent and conspicuous manner and returned to its permanent location once the remodeling project is complete.

For more information about ATM fee disclosures, contact Ken Otsuka, Senior Analyst-Risk Management with CUNA Mutual Group. He can be reached at kenneth.otsuka@cunamutual.com.

Posted in Advocacy News, Compliance, CUNA.