Another Wave Of ATM Fee Lawsuits Hitting Credit Unions

Posted: 2011-08-09 00:00:00

MADISON, Wis. – As another rash of lawsuits continue to be filed against financial institutions for failing to properly disclose ATM fees, CUNA Mutual Group reminds credit unions simple preventative steps can help them avoid costly fines and legal fees.

The lawsuits, which began in 2009, allege violation of section 205.16 of Regulation E. This provision applies when a consumer initiates an electronic funds transfer or 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.

As of June 30, CUNA Mutual had 44 open claims related to class action lawsuits alleging violations of Reg E, said Brad Mundine, CUNA Mutual senior manager of Credit Union Protection Risk Management. The suits span 14 states with litigation and loss exposure expected to exceed $3 million, he said.

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 Reg E could result in a fine of up to $500,000, plus costs and attorney fees based on the class action filing.

“The lawsuits typically involve missing signage on or at the ATM and incorrect fees disclosed on the sign at the ATM,” Mundine said. “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.”

Many of the lawsuits were filed by a retired Michigan couple, who reportedly combed that state searching for ATMs that lacked ATM fee signs. The couple has filed 40 lawsuits against credit unions and banks in the last 18 months.

Credit unions must be vigilant in ensuring their ATMs satisfy the fee disclosure requirements of Reg E, Mundine said. “These lawsuits can be avoided simply by inspecting the ATMs periodically to ensure the fee sign is intact. Another way to avoid lawsuits is to not place the fee amount on the sign. The regulation does not require the amount of the fee to be included on the sign.”

In addition, it is critical to develop and maintain written procedures for regularly inspecting ATMs. CUNA Mutual recommends ATMs 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 proper inspections are 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 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.

Mundine recommends policyholders, which represent more than 90 percent of U.S. credit unions, visit CUNA Mutual’s Protection Resource Center at www.cunamutual.com  to access a webinar and other risk prevention tools that can help credit unions prevent further losses.

CUNA Mutual Group insurance, retirement and investment products provide financial security and protection to credit unions and their members worldwide. With more than 75 years of true market commitment, CUNA Mutual's vision is unwavering: To be a trusted business partner who delivers service excellence through customer-focused products and market-driven insight. More information on the company is available on the company’s Web site at www.cunamutual.com.

CUNA Mutual Group is the marketing name of CUNA Mutual Insurance Society, its affiliates and subsidiaries, including CUMIS Insurance Society, Inc.  Product availability and features may vary by jurisdiction and are subject to actual policy language. Corporate headquarters are located in Madison, Wisconsin.