New Spike In Lawsuits, Fines Over Incorrect ATM Disclosures

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MADISON, Wis. — Credit unions now have another reason besides good member service to ensure their ATMs are shipshape — potential $500,000 fines.

There has been a significant spike in ATM fee disclosure class-action lawsuits filed against credit unions for failing to comply with Regulation E requirements for disclosing ATM fees, according to CUNA Mutual. The lawsuits allege violation of section 205.16 of the regulation, which applies when a consumer initiates an electronic funds transfer or a 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.

Ken Otsuka, senior analyst, risk management, said the suits are a significant risk concern for credit unions. "There has been a steady stream of lawsuits reported in the last several months with 12 new lawsuits alone reported between mid-December and the New Year. That's a huge amount. As far as these lawsuits reported to us, currently there are approximately 36 open cases."

Otsuka said the suits are driven by "ATM-chasing lawyers" who understand that a violation of Regulation E could result in a fine of up to $500,000 plus costs and attorney fees based on the class-action filing. "Considering attorney fees can be substantial — $100,000 to $200,000 — that is a windfall for the law firm, especially in this economic environment. Over the last two years many law firms see this as an easy way to make money."

Otsuka noted that law firms involved in the ATM cases apparently prefer to settle without going to trial, but was not aware of the amounts for which cases are being resolved.

The recent lawsuits involve missing signage on or at the ATM and incorrect fees disclosed on the sign at the ATM. 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," Otsuka explained.

CUs can avoid this risk by proper ATM monitoring, Otsuka said, and by not putting the fee on the ATM sign. "Make sure the fee appears on the screen before the consumer completes the transaction and on the receipt. Credit unions change their fees, so placing the fee amount on the ATM sign is risky. The fee is not required to be on the sign."

Otsuka advised that the fee notice signs should be positioned to be easily seen by an ATM user. He recommended establishing formal weekly ATM inspection procedures that not only include checking to see that signs are in place and that correct fees appear on receipts and on the ATM screen, but also taking digital pictures of the ATM to document and include in inspection records.

"Just having that formal documented process in place can certainly help the credit union if it were drawn into a lawsuit. Plus, vandalism occurs and someone could rip off a fee sign," Otsuka said, adding that credit unions should keep spare signs on hand. "Third-party vendors who service ATMs should be asked to perform the same inspections. Credit unions should also pay close attention to their ATMs during remodeling projects."

Otsuka noted that the preventative actions are small, simple steps that can avoid a huge risk exposure — and keep CUs' names out of headlines for violating a consumer protection law. "That would cast the credit union in a negative light within the community."

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