By Frank Simon
The 10-year-old Electronic Fund Transfer Act (EFTA) requires that banks display an on-screen notice and a separate notice in a visible area outside of an automatic teller machine, advising that a fee will be charged for using the ATM. The act also states that no fee will be charged if an electronic or posted notice is not visible, unless the consumer agrees to continue with a transaction. Notice posted on the screen alone is not enough and may expose ATM operators to civil liability for violation of the EFTA.
Monetary liability to an ATM operator can be significant. If an operator is found by a court to have failed to comply with the EFTA’s notice requirements, in the case of an individual consumer, the ATM operator may be liable for actual damages sustained, plus a statutory penalty of $100 to $1,000. In the case of a class action lawsuit, the ATM operator may be held liable for payment of the lesser of $500,000 or 1 percent of the ATM operator’s net worth. The EFTA also requires the ATM operator to pay the court costs associated with the lawsuit against it, along with the plaintiff’s “reasonable” attorneys’ fees for the lawsuit as determined by the court.
It is the exterior notice that is of interest to class plaintiffs. A cottage industry has sprouted up in many states whereby predatory plaintiffs troll for ATMs that lack the exterior notice posting. Once such an ATM is found, they will perform a transaction, snap a picture, and troll for the next machine. They may also return to a known, violative machine several times to establish the length of time, or window of non-compliance.
After one or more representative plaintiffs are in place, a suit can be filed, normally seeking discovery focusing on identification of additional plaintiffs for their class and the window of non-compliance. Basically, they use the ATM operator’s records against the operator to expand and build their class, and to support or even establish the merits of their case.
The ease with which an ATM missing the exterior notice can be discovered, coupled with operator risk management and aversion, appears to be the driving force behind the increasing number of these manufactured cases. Unless a solid defense is available to the ATM operator, risk aversion leads to quick settlements so as to avoid a long, litigious case, potentially resulting in an excessive damages award and payment of the class plaintiffs’ associated litigation costs and attorneys’ fees. Further, smaller operators may simply offer 1 percent of their net worth at the outset of a case representing a nuisance value settlement, regardless of the merit in the underlying claim.
Although the EFTA essentially imposes a strict liability standard on ATM operators, there are defenses that may be available under certain circumstances. They include: compliance with the act and regulations and/or good faith effort; and “act of God;” technical malfunction; and vandalism. Standard litigation defenses are also normally raised, including contract, consent, acquiescence, ratification, notice, laches, a one-year statute of limitations, waiver and estoppel. The ultimate success of any one or more of the defenses identified is case and fact specific.
Having an EFTA compliance program in place is essential to helping an ATM operator avoid the act’s pitfalls. Regular inspections of ATMs, and keeping a log of those inspections, drastically closes the possible window of non-compliance and, in fact, assists the ATM operator with its compliance/good faith effort defense. Many financial institution branches have compliance programs in place whereby they inspect the machines outside of their branches daily or weekly, and stockpile exterior notice stickers that they can easily apply to a non-compliant machine once discovered.
Simply rolling over when presented with a claim is unnecessary where an effective compliance program is in place. EFTA cases are normally lost where a compliance program is not in place, is not regularly followed, or is missing an essential element such as logging the inspections performed. Under those circumstances, the ATM operator may consider looking to its errors and omissions insurance carrier for coverage, especially if a compliance program was in place, but not consistently followed.■
Frank Simon is a partner at Simon, Galasso & Frantz, PLC, a multi-state law firm specializing in the representation of financial institutions and corporations.