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Iowa, the last bastion of ATM surcharging, is facing a lawsuit by five national banks that are seeking to have the state's ban on convenience fees overturned.
January 14, 2002
When it comes to ATM surcharging, Iowa is an anomaly. But that may change soon, now that five national banks have sued in federal court to overturn the state's ban on surcharges.
Metrobank, Wells Fargo Bank Iowa, Bank of America, Firstar Bank and U.S. Bank filed a lawsuit in federal district court against Iowa Banking Superintendent Holmes Foster on April 12, calling the state's ban on surcharges unconstitutional and seeking to have it lifted.
In other high-profile ATM surcharge cases of the past two years, including ones in Connecticut and the cities of San Francisco and Santa Monica, Calif., several courts have ruled that the National Bank Act preempts state or local efforts to ban surcharging.
A September 1999 decision in Iowa, while it did not address the surcharging issue, ruled in favor of Bank One, which had sued for the right to deploy ATMs in retail locations.
The conflict began whenBank One installed machines at a handful of Sears stores in 1997 as part of its Rapid Cash program. The state filed an action against Sears, citing a statute from its Electronic Funds Transfer Act that prevented banks without an office in Iowa from placing ATMs. Bank One then removed the machines and took Iowa to court, contending that the National Bank Act preempted state law.
After an initial ruling against Bank One in U.S. district court, the bank sought a preliminary injunction from the U.S. Court of Appeals for the Eighth Circuit in St. Louis. After hearing arguments from both sides, a three-member panel of the court issued a permanent injunction preventing Iowa from enforcing its statute preventing out-of-state bank deployment and also striking down a state ban on advertising at off-site ATMs.
In a strongly-worded majority opinion written by Chief Judge Roger L. Wollman, the court stated: "Congress has made clear in (the National Bank Act) its intent that ATMs are not to be subject to state regulation, and thus the provisions of the Iowa EFT Act that would prevent or significantly interfere with Bank One's placement and operation of its ATMs must be held to be preempted."
John Sorensen, president of the Iowa Bankers Association, said that many of the same state versus federal issues from the Bank One case are likely to be raised in the pending suit.
"If you look at recent court decisions, the ability of national banks to set prices and avoid surcharge bans has been quite successful. After the Bank One decision, I think the surcharge ban in Iowa is vulnerable," Sorensen said. "The language in the (Bank One) appellate court opinion indicates that pre-emption may extend beyond those issues."
According to Sorensen, it's not entirely clear whether Iowa's EFT Act prohibits surcharging. The state's ban is based upon an opinion of state law written by previous Superintendent of Banking Richard Buenneke in 1991. "I think there's a need for clarity here," he said.
Current Superintendent of Banking Holmes Foster apparently agrees with Sorensen. Foster told the Des Moines Register that he was "not unhappy" that the suit was filed. "I think this will clarify whether federal law prevails or state law prevails in the situation, and everybody will know better than we do now where we stand," he said.
The Association has not taken a position on the surcharge issue, although it established a task force in March to examine the issue of ATM pricing.
Of the nearly 2,300 ATMs in Iowa, just 410 are owned by the five banks involved in the pending suit, according to Sorensen. Those numbers will likely increase if surcharging is allowed.
No matter which side prevails, Sorensen said, it will be important to protect smaller state banks' ability to compete with the larger national players. "If it was determined that there was no prohibition, our concern would be that the (surcharging) abilities would be provided to state banks at the same time as the national banks."
The Iowa Independent Bankers, which represents 230 community banks, supports the state's surcharge ban. Iowa's EFT Act ensures that all consumers have non-discriminatory access to ATMs, said Don Hole, the group's executive vice president and CEO.
"Very few states have an EFT law as comprehensive as Iowa's," Hole said. "We have a law that we think works really well that allows all banks to utilize the EFT system and all customers to have access to ATMs in the state."
Patricia Crawford, a spokesperson for Wells Fargo Iowa, said the bank doesn't think it's unreasonable to expect non-customers in Iowa to pay a convenience fee to use proprietary ATMs. "The ATMs each of us have established are for our customer base. It's a convenience we can afford to non-customers – but we expect them to pay a fee, much as they would elsewhere."
"It would be interesting to see if consumers object," she added, noting that most have become accustomed to paying fees when using out-of-state ATMs.
A source close to the issue said that the banks' attorneys hope to meet with state officials in the hopes of obtaining an expedited judgment and avoiding a lengthy legal battle.
Bob Brammer of the Iowa Attorney General's Office said the state is currently reviewing the banks' petition. No hearing has been set.
