Nancy and Ray are day-trippers, but their usual destination is not a historical or cultural attraction. Instead, they scour the highways and byways looking for ATMs lacking proper fee-notice signs. When they find one, they make a cash withdrawal, take a picture, and file a class-action lawsuit. And they are not alone.
Plaintiffs across the country have filed hundreds of federal lawsuits claiming that banks and other ATM operators have violated the Electronic Fund Transfer Act by failing to post physical signage on or at ATMs notifying consumers of fees imposed for ATM transactions.
Modern ATMs provide onscreen notice and require the consumer to consent to the fee before completing a transaction, but that does not stop plaintiffs like Nancy and Ray from suing. Regulation E, the implementing regulation for EFTA, requires ATM operators to provide consumers with not one, but two forms of fee notice: both physical signage on or near the ATM and onscreen notice. According to plaintiffs, EFTA is a strict-liability statute, and failing to provide physical signage automatically exposes ATM operators to statutory damages, costs, and attorneys’ fees.
Most banks and ATM operators settle these cases, reportedly for amounts ranging from the low thousands to the low millions of dollars. But as these suits proliferate, there is reason to reconsider that strategy. In fact, there is a strong argument to be made that courts should dismiss these cases because plaintiffs lack constitutional standing.
Article III of the U.S. Constitution limits the jurisdiction of federal courts to disputes that raise an actual controversy between parties. According to caselaw interpreting Article III, private plaintiffs must show that they have suffered a concrete, particularized "injury-in-fact" to bring a case before a federal court. If the plaintiff cannot demonstrate an injury-in-fact, the case must be dismissed.
Even where an ATM lacks physical signage, it is difficult to see how a plaintiff could suffer a resulting injury-in-fact. Modern ATMs disclose their fees on the screen and require customer consent to complete the transaction. Moreover, ATM fees, especially for transactions by non-bank customers, have been standard practice for many years. Plaintiffs claim not that they were somehow "suckered" into paying a fee, but only that they were victims of a purely statutory violation.
Outside of the EFTA context, two federal cases, Cargill, Inc v. United States (5th Cir.) and Central Arizona Irrigation & Drainage District v. Lujan (D. Ariz.), have held that a statutory-notice violation does not inevitably amount to an injury-in-fact. In both cases, the plaintiffs’ receipt of actual notice (in Cargill, actual notice of the establishment of an agency; in Central Arizona, actual notice of a proposal to amend a contract) foreclosed any claim based on a technical violation of a statutory-notice obligation. Both courts dismissed the cases on lack-of-standing grounds.
Two district courts addressing the standing issue in the EFTA context, however, have effectively rejected that line of reasoning. In Kinder v. Dearborn Federal Savings Bank (E.D. Mich.) and in re: Regions Bank ATM Fee Notice Litigation (S.D. Miss.), the courts ruled that, regardless of the plaintiffs’ actual notice of the ATM fees, the plaintiffs were entitled to notice of the fee in the forms prescribed by Congress. As the Regions court explained, “Congress created a statutory right to a [physical] form of notice, and Plaintiffs allege that Defendant did not provide it. That is a concrete, particular injury.”
From my point of view, Regions and Kinder were wrongly decided. The courts seem to have conflated the statutory standing question (Does the statute authorize private citizens to sue for statutory violations?) with the constitutional standing question (Has the plaintiff demonstrated an injury-in-fact?). That conflation appears to be at odds with Supreme Court precedent establishing that "the requirement of injury-in-fact is a hard floor of Article III jurisdiction that cannot be removed by statute" (Summers v. Earth Island Institute). In other words, where there is no injury-in-fact, a plaintiff cannot rely on congressional say so (in the form of a statute) to gain access to federal court.
That issue is currently under review in First American Financial Corp. v. Edwards, a case before the U.S. Supreme Court. The question there is whether an injury-in-fact can be created by statute, regardless of whether any actual harm is asserted. During oral argument, several justices, including Chief Justice Roberts, raised concerns about obliterating any distinction between injury-in-fact and injury-in-law. And as Justice Scalia remarked, if Congress were empowered to "dictate in advance that a particular practice has caused injury to a particular plaintiff," the courts would be given purview over regulatory enforcement, which is the role of the executive, not the judiciary.
Although First American is a case under the Real Estate Settlement Procedures Act, it is likely that the decision will impact ATM litigation. Both RESPA and EFTA allow for statutory damages, costs, and attorneys’ fees for a statutory violation. Ultimately, fee-notice defendants will have reason to cheer if the Supreme Court rejects the type of reasoning found in the Regions and Kinder cases, both of which appear to have misconstrued Article III's injury-in-fact requirement.
Fee-notice litigation is a poster child for nuisance suits—the type of suits that enrich unharmed plaintiffs, clog the courts, increase banking costs, and promote no wider social purpose. For banks and other ATM operators, the standing argument could be a silver-bullet defense, even in the wake of Regions and Kinder. The key is to persuade courts that, absent actual injury, a technical EFTA violation cannot establish constitutional standing. Whether First American will support this argument is something we will soon find out.
Eric P. Magnuson is a partner in the litigation department of the Boston law firm of Nutter McClennen & Fish.