Article

Early decision in Iowa surcharge suit goes banks' way

ATM surcharges may be a long time coming to Iowa, the only state that still bans them. Although a recent decision by a U.S. District Court judge favors five national banks that are seeking the right to surcharge non-customers there, state officials are standing by their interpretation of Iowa banking laws.

September 4, 2001

A recent decision by a U.S. District Court judge to allow a suit over ATM surcharges in Iowa to proceed in federal court is an early step in what could be a slow-moving legal process, according to officials close to the case.

Judge Ronald E. Longstaff on Aug. 21 threw out a motion to dismiss the suit, filed by Iowa Division of Banking Superintendent Holmes Foster, who is listed as the defendant in a case brought by Metrobank, Wells Fargo Bank, Bank of America, Firstar Bank and U.S. Bank.

Foster had argued that the case should be heard in state courts rather than the federal court system. He also said that the suit should be dismissed because there was no case or controversy given that none of the five banks had surcharged at ATMs in Iowa.

"This was the first round of positioning by both parties," said Don Hole, Iowa Independent Bankers executive vice president and chief executive officer. "It's the usual thing; the defendant always wants these things dismissed, while the plaintiff always asks for a declaratory judgment."

Iowa is the only state with an ATM surcharge ban, which is based on an interpretation of state banking laws written by previous Superintendent of Banking Richard Buenneke in 1991.

But several provisions of Iowa law were successfully challenged in 1999 by Bank One, which sought to place ATMs at retail outlets there despite state laws prohibiting banks that did not have offices in Iowa from doing so. In that case, the courts ruled that the National Bank Act (NBA) preempted Iowa state banking laws.

Emboldened by Bank One's success, the five banks filed suit on April 12, seeking relief from the courts from Iowa law prohibiting them from charging non-bank customers for using their ATMs. The argument, as it was in the Bank One case, is that the National Bank Act supercedes Iowa statutes.

According to Longstaff's dismissal ruling: "Under the NBA, the Office of the Comptroller of the Currency (OCC) is the regulatory agency governing national banks' services. The OCC has stated that a national bank may charge its customers non-interest charges and fees, and 'the establishment of non-interest charges and fees, and the amounts, thereof, is a business decision to be made by each (national) bank, in its discretion.'"

Three of the banks involved in the current suit, Metrobank, Wells Fargo and Bank of America, sought the OCC's opinion on surcharging in Iowa before filing the suit. All received letters from the OCC supporting their plans to surcharge.

In rejecting Foster's state-before-federal argument, Longstaff noted that a U.S. Circuit Court ruling in the Bank One case made it clear that Congress believes that states cannot supercede federal rules concerning the way national banks administer their ATM systems. Because of that, he believes it is reasonable to have the current case heard in U.S. District Court. 

"In (the Bank One) case, the Eighth Circuit determined that several provisions of Iowa Code chapter 527 were preempted by the NBA (National Bank Act)," Longstaff wrote in his ruling. "In light of the five national bank' agreement with the administrator regarding the interpretation of the Iowa statute, it seems contextually appropriate for this federal court to address whether the national banks may charge such fees."

Kurt Helwig, executive director of the Washington, D.C.-based trade group Electronic Funds Transfer Association, believes the Bank One case clearly positions the national banks to bring surcharging into Iowa.

"This is the last frontier (for resisting surcharging) and Iowa ultimately is going to be fighting an uphill battle," Helwig said. "In this case the precedent is strong and growing stronger."

Where the case goes from here will depend on the five banks' motion for summary judgment, which was filed in early May. If that motion is rejected, as expected, then both sides will settle in for what is expected to be a lengthy process.

"We're not even to the basic treatment of the thing yet," said Bob Brammer of the Iowa Attorney General's office. "It's still in the procedural stage. It's moving forward steadily, but it's detailed."

Added Hole: "When we went through this previously (with Bank One), it took about 2 ½ years to resolve. Obviously, it would be the desire of the national banks to make this process much shorter."

The ATM industry, from the five banks involved in the suit to manufacturers to ISOs, are awaiting a final decision in Iowa. While Iowa's population of 2,926,324 in the 2000 census ranks it just 30th in the U.S., an executive at one ISO said Iowa's longtime status as a surcharging holdout will make it prime territory for rapid ATM expansion if the restrictions are eased.

"The potential is huge," said Eric Hennings, national sales manager for the Billing, Mont.-based ATM Express and a former Iowa resident. "You can be in downtown Des Moines and there's one drive-up ATM in a four-block area. On any given night, there's a 15-minute wait. You'll see tons of people lined up."

"If it does open up in Iowa," he added, "it'll be a gold rush."