In another yank in the tug-of-war over states' rights, Iowa is fighting a federal court decision barring it from regulating automated teller machines operated by national banks.

Iowa rules must apply or national banks will have an unfair advantage over state banks at the expense of consumers, Iowa Banking Superintendent Michael K. Guttau argued in his Sept. 15 appeal.

Mr. Guttau asked the U.S. Court of Appeals for the Eighth Circuit in St. Louis to reconsider the Sept. 2 ruling, which was handed down by a panel of three judges who split 2 to 1.

The panel's majority ruled that the Office of the Comptroller of the Currency's authority to regulate national banks preempts the ATM provisions of the Iowa Electronic Funds Transfer Act of 1976.

The decision was a victory for Bank One Corp., which sued the state after being forced in 1997 to scratch ATM service to Sears, Roebuck and Co. customers in Iowa, where the bank has no branches.

Iowa's ATM law is relatively restrictive. For instance, only banks with full-service branches in Iowa may install off-site ATMs. Bank One went ahead and put ATMs in a number of Sears stores. The state banking department demanded Bank One yank the machines. Bank One sued.

Another point of contention is the state rule against bank advertising on stand-alone machines. Such machines may bear small nameplates with the owner's name, but only the ATM network's logo is allowed.

While the state can regulate branches, ATMs owned by national banks are beyond its jurisdiction, the panel ruled. The judges said they based their decision on a 1996 amendment to the National Bank Act.

"Congress has made clear in the NBA its intent that ATMs are not to be subject to state regulation," wrote Chief Judge Roger L. Wollman. "Thus the provisions of the Iowa EFTA that would prevent or significantly interfere with Bank One's placement and operation of its ATMs must be held to be preempted."

In its petition, Iowa asserts the distinction between banks and branches in federal law was "a minor definitional change" that should not be construed to have the effect of "undermining principals of federalism."

In his dissent, Judge Myron H. Bright said states must have the power to protect consumers.

"Even if a national bank's ATM need not comply with state law geographic restrictions, that does not mean other relevant and permissible state law restrictions are preempted," the dissent stated. "Protection of the consumer is well within the power of states to render and is not preempted by federal law."

John Sorensen, the president of the Iowa Bankers Association, also said the opinion favoring national banks goes too far and could exempt them from consumer protection rules. For instance, national banks could surcharge while state banks could not, he said.

"The opinion was written so strongly that it might give national banks the power to ignore all of our EFT law," Mr. Sorensen said. Iowa should decide whether restrictions on ATM operations should be lifted, he said. "That should be done legislatively as opposed to being dictated by the Comptroller of the Currency."

National banks are also suing Connecticut over its ban on ATM surcharges. Voters in San Francisco are scheduled to decide Nov. 2 if the city can impose a ban on surcharges. If approved, it too would be challenged by national banks, said Michael F. Crotty, deputy general counsel for litigation at the American Bankers Association.

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