Banc One Corp.'s nationwide automated teller machine ambitions hit a legal wall in Iowa.
A federal judge has dealt sternly with what he viewed as an illegal attempt to circumvent the state's electronic funds transfer law.
The skirmish could be replayed as superregional and regional banks enter new territories through acquisition or branching, raising new questions about state versus federal jurisdiction over electronic services.
Judge Ronald E. Longstaff in U.S. District Court for the Southern District of Iowa denied Banc One's bid for a preliminary injunction that would have allowed it to operate ATMs in seven Sears, Roebuck and Co. stores.
Banc One argued that the National Bank Act preempts state law, enabling it to deploy its Rapid Cash ATMs without having a banking license in Iowa.
But in the decision issued two weeks ago, the judge said the National Bank Act "contains no language expressly preempting state ATM law. ... The dual regulatory system of banking, subjecting national banks to state law in some instances, indicates Congress did not intend federal law to occupy the field."
Columbus, Ohio-based Banc One, which has installed than 6,000 ATMs at nonbank sites, signed a deal with Sears in 1997 to install up to 800 machines nationwide.
A state lawsuit is pending against Sears, which pulled the plug on the Rapid Cash machines last year on orders from Iowa banking officials, which in turn prompted the Banc One petition.
The banking company "continues to believe our deployment of ATMs in Iowa is in full compliance with applicable law, and we are confident that our interpretation of the law ultimately will prevail in court," said Banc One spokeswoman Patricia Shafer.
Besides requiring that ATMs be operated by banks fully established in Iowa, the state law bans advertising at ATMs, requires regulatory approval for each bank machine, and through routing rules effectively requires that transactions be processed through Shazam Inc., the shared ATM network based in Johnston, Iowa.
The routing rules have discouraged other ATM networks from setting up shop in the state.
"We cannot go in and compete for business in the state of Iowa, yet they (Shazam) can come over and establish relationships here," said James Martin, president and chief executive officer of Tyme, an ATM network based in Brown Deer, Wis.
He said the right of outsiders such as Banc One and Tyme to do business in Iowa "is so clear in my mind I just don't see how a rational person can justify" the restrictions.
"Banks want to control their own destiny," said Stephen S. Cole, president and chief executive officer of Cash Station Inc., a Chicago-based network with eyes on doing business in the state. "They want to have their own choice."
"We are working hard to defend Iowa's laws, which provide for universal access without surcharges at our ATMs," said Bob Brammer, spokesman for the state attorney general's office.
John Sorensen, president of the Iowa Bankers Association, said the district court decision benefits consumers and prevents putting "our state banks at a disadvantage if national banks didn't have to comply with" the state law.
