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ATM Fee-Notice Litigation, Part I: Electronic Fund Transfer Act Basics

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During recent months, plaintiffs across the country have commenced hundreds of cases in federal courts claiming that ATM operators failed to post physical signage on or at ATMs notifying consumers of fees imposed for ATM transactions. In most—if not all—of these cases, the plaintiffs received on-screen notice of the fees before withdrawing funds from the ATMs. This is because the typical ATM requires a consumer to respond to an electronic query and accept the fee before the fund transfer can be completed. Despite receipt of on-screen notice, plaintiffs allege that the failure to post or maintain physical signage of ATM fees violates the Electronic Fund Transfer Act (“EFTA”),1 thereby exposing defendants to liability for damages, costs, and attorneys’ fees.

In this installment of our multipart advisory, we highlight relevant provisions of EFTA and briefly identify strategies for responding to fee-notice litigation. In later installments, we will analyze some of those strategies and discuss other EFTA issues and developments.

Statutory Framework

Notice Requirements. EFTA is the federal statute “establishing the rights, liabilities, and responsibilities of participants in electronic fund and remittance transfer systems.”2 Under EFTA, an ATM operator that charges a fee for an electronic-fund transfer must notify the consumer of “the fact that a fee is imposed” and “the amount of any such fee.”3 According to EFTA’s implementing regulation, known as Regulation E,4 ATM operators must provide consumers two forms of fee notice.5 The fee notice must be (1) posted “in a prominent and conspicuous location on or at the [ATM]”;6 and (2) shown “on the screen of the automated teller machine” or provided on paper “before the consumer is committed to paying a fee.”7

Remedies. EFTA’s actual-damage provision states that a defendant may be liable “in an amount equal to the sum of any actual damage sustained by [the] consumer as a result of such failure [to comply with any provision of EFTA].”8 In the context of fee-notice litigation, courts have construed this language to require proof of detrimental reliance; in other words, before recovering actual damages, the plaintiff must show that there was a statutory violation and that “[the plaintiff] saw and relied on a misleading notice, or no notice existed and he relied on the absence of a notice,in deciding whether to proceed with the ATM transaction.”9

Statutory damages under EFTA are a different animal. A prevailing individual plaintiff can recover “an amount not less than $100 nor greater than $1,000.”10 In the class-action context, there is no minimum recovery for individual class members, but the class can recover statutory damages up to the lesser of $500,000 or 1% of the defendant’s net worth.11 In contrast to actual damages, statutory damages have been held recoverable regardless of whether the plaintiff establishes detrimental reliance.12

In addition to recovering damages, plaintiffs can recover costs and reasonable attorneys’ fees under EFTA, but only if the plaintiffs prevail in the action.13

Limitations Period. A claim under EFTA must be commenced “within one year from the date of the occurrence of the violation.”14

Statutory Defenses. EFTA provides certain “safe harbor” defenses. The statute does not impose liability where (1) an existing fee notice was removed, altered, or damaged by a third party;15 or (2) the absence of a fee notice was caused by a bona fide error, “notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”16

Defense Costs/Fees. EFTA authorizes a defendant to recover its costs and reasonable attorneys’ fees where a court finds “that an unsuccessful action under [the statute] was brought in bad faith or for purposes of harassment.”17

Defense Strategies

From the defense perspective, fee-notice cases under EFTA amount to opportunistic strike suits. The individuals bringing suit are often professional plaintiffs who hunt to find non-conforming ATM signage and initiate serial lawsuits against banks and other institutions. Because of the on-screen notice provided by ATMs, these plaintiffs cannot plausibly claim to have been mislead by missing fee signage. And yet, plaintiffs pursue litigation in these circumstances, claiming that EFTA imposes, in effect, a strict-liability scheme on ATM operators.

When named in these lawsuits, defendants often choose to “pay off” the plaintiffs and settle immediately, presumably because of the high cost of litigation. There are other strategies, however, that may enhance a defendant’s position in settlement negotiations or serve as a basis to prevail in the case. In short, a defendant may decide to file a motion to dismiss, respond with a counterclaim, assert affirmative defenses, make an offer of judgment, or litigate liability. The soundness of these strategies will depend on the circumstances presented in each action.

Nutter recently settled an EFTA case where the defendant, in accordance with the parties’ settlement agreement, paid no monies to the plaintiff. The plaintiff claimed that Nutter’s client, a bank, violated EFTA by failing to post a physical notice of a $2.00 ATM fee. The bank counterclaimed, alleging that the lawsuit was commenced in bad faith. The bank also moved to dismiss the case, arguing that the plaintiff did not have constitutional standing to pursue his claims. Shortly after receiving the motion to dismiss, the plaintiff proposed that the parties dismiss their claims with prejudice, with the bank paying no damages, costs, or fees. The bank accepted the proposal, and the case was dismissed.

*        *        *

In the next installment of this advisory, we will discuss the strategy of moving to dismiss an EFTA litigation on the grounds that a plaintiff lacks constitutional standing.

1 15 U.S.C.A. § 1693 et seq. (West 2011).

2 15 U.S.C.A. § 1693 (West 2011).

3 15 U.S.C.A. § 1693b(d)(3)(A) (West 2011).

4 12 C.F.R. § 1005.

5 12 C.F.R. § 1005.16.

6 12 C.F.R. § 1005.16(c)(1).

7 12 C.F.R. § 1005.16(c)(2).

8 15 U.S.C.A. § 1693m(a)(1) (West 2011) (emphasis added).

9 Stilz v. Global Cash Network, Inc., No. 10 CV 1998, 2010 WL 3975588, *5 (N.D. Ill. Oct. 7, 2010); accord, e.g., Brown v. Bank of America, 457 F. Supp. 2d 82, 90 (D. Mass. 2006). But cf. Voeks v. Wal-Mart Stores, Inc., No. 07-C-0030, 2007 WL 2358645, *4-5 (E.D. Wis. Aug. 17, 2007).

10 15 U.S.C.A. § 1693m(a)(2)(A) (West 2011).

11 15 U.S.C.A. § 1693m(a)(2)(B) (West 2011).

12 See Nadeau v. Wells Fargo Bank, Nat’l Ass’n, No. 10-4356, 2011 WL 1633131, *2, *4 (D. Minn. Apr. 26, 2011).

13 15 U.S.C.A. § 1693m(a) (West 2011).

14 15 U.S.C.A. § 1693m(g) (West 2011).

15 15 U.S.C.A. § 1693h(d) (West 2011).

16 15 U.S.C.A. § 1693m(c) (West 2011).

17 15 U.S.C.A. § 1693m(f) (West 2011).

This advisory was prepared by Eric P. Magnuson, a member of the Business Litigation and Banking and Financial Services practice groups at Nutter McClennen & Fish LLP. For more information, please contact Eric at 617.439.2324 (or or your Nutter attorney at 617.439.2000.

This advisory is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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