A federal appeals court Tuesday ordered the Federal Reserve Board to reconsider its approval of Electronic Payment Services Inc.'s purchase of an automated teller machine network in the Ohio Valley.
The U.S. Court of Appeals for the District of Columbia vacated the central bank's March 1, 1995, ruling, saying it did not adequately consider the competitive effects of Electronic Payment Systems' acquisition of an ATM network from National City Corp.
The court ruling turned on the Bank Holding Company Act provision that requires acquisitions of nonbanks to be demonstrably in the public interest.
"The board's public-benefits findings were in fact too speculative and were not based on evidence in the record," Judge Patricia M. Wald wrote for a two-to-one majority.
Money Station, a competing ATM company, appealed the Fed order giving Electronic Payment Systems permission to add National City's ATMs in Pennsylvania, Ohio, and Kentucky to its MAC network. Money Station argued the Fed should have held a public hearing on the deal's anti-competitive effects.
The appeals court found the lack of a hearing a "fatal flaw" in the approval process. It said the Fed's own rules require a hearing whenever material facts are in dispute.
"An evidentiary hearing was precisely what was required to address this dispute as to the existence and extent of the potential public benefits" of the merger, Judge Wald wrote.
Money Station general counsel Stephen J. Landes applauded the outcome. "We feel it is a major step in favor of competition in the ATM network business," he said.
"Compliance with this order is not necessarily going to change bottom- line outcomes," said American Bankers Association deputy general counsel Michael Crotty. "But this could delay the approval process, which in some instances is going to be a bad thing."
Fed spokesman Joseph Coyne the Fed is "probably going to have to have a hearing (on National City), but it's too early to say because the board hasn't seen the decision yet."
Electronic Payment Systems, based in Wilmington, Del., is a joint venture of National City, Banc One Corp., CoreStates Financial Corp., PNC Bank Corp., and KeyCorp. Electronic Payment's lawyer, Stephen Paul Mahinka, said he is confident the Fed will reapprove the deal.
Valerie Block contributed to this report.