Opinion
2:09-cv-633.
October 15, 2009
MEMORANDUM OPINION AND ORDER OF COURT
Presently before the Court is the MOTION TO DISMISS AMENDED COMPLAINT, with brief in support, filed by Defendant Sewickley Savings Bank (Document Nos. 21 and 22), and the BRIEF IN OPPOSITION TO DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED COMPLAINT, filed by Plaintiff Daniela Helkowski (Document No. 23).
BACKGROUND
On May 21, 2009, Plaintiff Daniela Helkowski ("Plaintiff") commenced this lawsuit by filing a Complaint (Doc. No. 1) alleging that Defendant failed to comply with the notification provision of the Electronic Funds Transfer Act, 15 U.S.C. § 1693 et seq., ("EFTA" or "the Act"), required before a bank can impose a transaction fee for a customer's use of an automated teller machine ("ATM").
On July 22, 2009, Defendant Sewickley Savings Bank filed a Motion to Dismiss and Brief in Support pursuant to Federal Rule of Civil Procedure 12(b)(6), in which it contends that the Complaint fails to state a claim for which relief can be granted under the decisions of the United States Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937 (2009). In the alternative, Defendant moved for summary judgment pursuant to Federal Rule of Civil Procedure 56, and filed a concise statement of material facts. (Doc. Nos. 10 11). On July 29, 2009, Plaintiff filed a brief in opposition to the motion to dismiss. (Doc. No. 14). On August 10, 2009, Plaintiff filed her response to the concise statement of material facts. (Doc. 17).
On August 24, 2009, this Court granted respective motions to dismiss in Dragotta v. West View Savings Bank, Civ.A. No. 2:09-cv-627, 2009 WL 2612318 (W.D.Pa. 2009) and Dover v. Union Building and Loan Savings Association, Civ.A. No. 2:09-cv-708, 2009 WL 2612355 (W.D.Pa. 2009). Both Dragotta and Dover alleged identical violations of the EFTA and were premised upon virtually identical facts as those contained in the matter sub judice. On August 26, 2009, Plaintiff filed a Motion for Oral Argument and For Leave to file a Supplemental Briefing in Opposition to Defendant's motion to dismiss. (Doc. No. 18). On August 30, 2009, and prior to the entry of an order on the motion for oral argument, Plaintiff filed an Amended Complaint, adding sixteen (16) new paragraphs and eighteen exhibits ostensibly in an attempt to avoid an order granting Defendant's motion to dismiss.
The issues have been fully briefed by the parties and the matter is ripe for disposition. After a careful consideration of the motion, the filings in support and opposition thereto, and the relevant case law, the Motion to Dismiss Plaintiff's Amended Complaint will be granted.
STANDARD OF REVIEW
Rule 8 of the Federal Rules of Civil Procedure provides that a claim for relief must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Each allegation must be simple, concise, and direct. Fed.R.Civ.P. 8(d). Rule 8 requires a showing, rather than a blanket assertion, of entitlement to relief, and "'contemplates the statement of circumstances, occurrences, and events in support of the claim presented' and does not authorize a pleader's 'bare averment that he wants relief and is entitled to it.'" Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 n. 3 (2007) ( quoting 5 Wright Miller, Federal Practice and Procedure § 1202, pp. 94, 95 (3d ed. 2004)).
A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure challenges the legal sufficiency of the complaint. The court must accept as true all well-pleaded facts and allegations, and must draw all reasonable inferences therefrom in favor of the plaintiff. However, as the United States Supreme Court made clear in Twombly, the factual allegations included in a complaint must be enough to raise a right to relief above the speculative level. Twombly, 550 U.S. at 555 (citations omitted). Thus, "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id.
Recently, the United States Supreme Court reaffirmed Twombly in Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937 (2009), and expressly extended the Twombly pleading standard to matters beyond the realm of antitrust law. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Iqbal, 129 S.Ct. at 1949. A claim has facial plausibility when a plaintiff pleads factual content that allows a court to draw the reasonable inference that the defendant has acted unlawfully. Id. Satisfying this plausibility standard requires more than suggesting the sheer possibility that a defendant acted unlawfully. "Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement of relief." Id. ( citing Twombly, 550 U.S. at 557, 127 S.Ct. 1955) (internal quotation marks omitted).
As the Supreme Court noted, two principles underlie the decisions in both Twombly and Iqbal. The first principle is the tenet that while a court must accept as true all factual allegations contained in a complaint, it does not have to accept either legal conclusions or conclusory statements. Id. In illustration of this point, the Court noted that while Rule 8 "makes a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, . . . it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Iqbal, 129 S.Ct. at 1950. The second principle is that only a plausible claim for relief survives a motion to dismiss. Id. More importantly, determining whether a complaint states a plausible claim for relief is a context-specific task that requires a court to draw upon its judicial experience and common sense. Id.
It is important to note that nothing in Twombly or Iqbal has changed other pleading standards for a Rule 12(b)(6) motion to dismiss. The United States Supreme Court did not impose a new heightened pleading requirement, but reaffirmed that Rule 8 requires only a short and plain statement of the claim showing that the pleader is entitled to relief, not "detailed factual allegations." See Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) ( citing Twombly, 550 U.S. at 555). Generally, "to the extent that [a] court considers evidence beyond the complaint in deciding a 12(b)(6) motion, it is converted to a motion for summary judgment." Anjelino v. New York Times Co., 200 F.3d 73, 88 (3d Cir. 1999); Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993). However, courts are permitted to consider matters of public record, exhibits attached to the complaint, and undisputably authentic documents attached to the motion to dismiss without converting the motion to one for summary judgment. Delaware Nation v. Pennsylvania, 446 F.3d 410, 413 (3d Cir. 2006).
ANALYSIS
In keeping with the principles underlying the Supreme Court's decisions in Twombly and Iqbal, the Court will begin by distinguishing those pleadings that are factual allegations from those that, because they are no more than conclusions, are not entitled to the assumption of truth. The following background is drawn from the Amended Complaint and the factual allegations therein are accepted as true for the purpose of this Opinion. The facts underpinning Plaintiff's claim are straightforward and not contested. On or about May 6, 2009, Plaintiff made an electronic fund transfer at Defendant's ATM machine located at 531 Broad Street, Sewickley, PA 15143. See generally, Doc. No. 19. Defendant is a state chartered mutual savings bank. Id. at ¶ 13. At the time of the transaction, Plaintiff did not maintain an account with Defendant. Id. at ¶ 16. Plaintiff was charged a "terminal owner fee" of $1.50 for the transaction. Id. at ¶ 16. At the time of the transaction, there was no notice posted "on or at" the Defendant's ATM to apprise consumers that a fee would be charged for the use of the ATM. Id. at ¶ 18.
For its part, Defendant argues that, notwithstanding the facts as alleged by Plaintiff, it is not subject to liability under the Act as a result of its good faith compliance with the EFTA. The issue before the Court is purely a question of law, to wit: does the Plaintiff state a plausible claim for relief? Said another way, does the factual content of the Amended Complaint permit the Court to infer more than the mere possibility of misconduct? The Court concludes that it does not.
The federal government enacted the EFTA as part of the comprehensive Consumer Credit Protection Act (the "CCPA"), Pub.L. No. 95-630 § 2001, 92 Stat. 3641 (1978) (codified as amended at 15 U.S.C. § 1601 et seq.). The EFTA protects individual consumer rights by "provid[ing] a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer systems." 15 U.S.C. § 1693(b). One of the EFTA's provisions requires that operators of automated teller machines ("ATMs") provide notice of fees charged to consumers for use of the machine. It is this provision, 15 U.S.C. § 1693b(d), under which Plaintiff's claim is premised. Specifically, 15 U.S.C. § 1693b(d) requires:
(3) Fee disclosures at automated teller machines
(A) In general
The regulations prescribed under paragraph (1) shall require any automated teller machine operator who imposes a fee on any consumer for providing host transfer services to such consumer to provide notice in accordance with subparagraph (B) to the consumer (at the time the service is provided) of —
(i) the fact that a fee is imposed by such operator for providing the service; and
(ii) the amount of any such fee.
(B) Notice requirements
(i) On the machine
The notice required under clause (i) of subparagraph (A) with respect to any fee described in such subparagraph shall be posted in a prominent and conspicuous location on or at the automated teller machine at which the electronic fund transfer is initiated by the consumer.
(ii) On the screen
The notice required under clauses (i) and (ii) of subparagraph (A) with respect to any fee described in such subparagraph shall appear on the screen of the automated teller machine, or on a paper notice issued from such machine, after the transaction is initiated and before the consumer is irrevocably committed to completing the transaction. . . .
C) Prohibition on fees not properly disclosed and explicitly assumed by consumer
No fee may be imposed by any automated teller machine operator in connection with any electronic fund transfer initiated by a consumer for which a notice is required under subparagraph (A), unless —
(i) the consumer receives such notice in accordance with subparagraph (B); and
(ii) the consumer elects to continue in the manner necessary to effect the transaction after receiving such notice.
The EFTA defines an "automated teller machine operator" as a person who operates an ATM and "is not the financial institution that holds the account" of the consumer using that ATM. 15 U.S.C. § 1693b(d)(3)(D)(I). Accordingly, Defendant is the ATM operator as that term is defined in the EFTA.
Defendant's position rests upon two factual predicates, neither of which are in dispute. The first is that during the course of the alleged ATM transaction and prior to having a transaction fee assessed, notice was provided to Plaintiff on the screen of the ATM that such a fee would be levied and also that the notice reflected the actual amount of the fee. This is the "on the screen" notification required by 15 U.S.C. § 1693b(d)(3)(B)(ii). The essence of Plaintiff's Complaint is that Defendant failed to provide an "on the machine" notice, as required by 15 U.S.C. § 1693b(d)(3)(B)(i), and that such a failure violates the EFTA because the Defendant was required to provide both the "on the machine" and the "on the screen" notices. See generally, Doc. Nos. 1, 19. Plaintiff has not alleged that she did not receive the "on the screen" notice, and the Court will not infer that she was not provided such notice. The second factual predicate is that Defendant is an FDIC insured state-chartered savings bank that is not a member bank of the Federal Reserve System. Plaintiff specifically pleads as much. Doc. No. 19 at ¶ 13.
Keeping in mind the question of whether Plaintiff has sufficiently alleged a plausible claim by alleging sufficient facts from which the Court may draw the reasonable inference that the Defendant has acted unlawfully, the Court turns to the inter-relationship between the Federal Reserve Board, the FDIC, and state-chartered non-Federal Reserve member banks with respect to the notice requirements of the EFTA.
The EFTA grants to the Board of Governors of the Federal Reserve System ("the Board") the authority and responsibility to "prescribe regulations to carry out the purposes" of the Act. 15 U.S.C. § 1693b(a). Accordingly, the Board implemented various administrative regulations codified at 12 C.F.R. § 205 ("Regulation E"). On the issue of ATM notice, Regulation E provides:
(b) General. An automated teller machine operator that imposes a fee on a consumer for initiating an electronic fund transfer or a balance inquiry shall:
(1) Provide notice that a fee will be imposed for providing electronic fund transfer services or a balance inquiry; and
(2) Disclose the amount of the fee.12 C.F.R. § 205.16(b). To this extent, this general notice provision of Regulation E mirrors the language of the EFTA with respect to the requirement to inform consumers of ATM transaction fees, namely that a fee will be imposed and the amount of the fee when compared with 15 U.S.C. § 1693b(d)(3)(A). There is one term of significance, however, included in Regulation E that is not found in the actual statutory language regarding that which an ATM operator must do to comply with the notification requirement. 12 C.F.R. § 205.16(c) requires:
(c) Notice requirement. To meet the requirements of paragraph (b) in this section, an automated teller machine operator must comply with the following:
(1) On the machine. Post in a prominent and conspicuous location on or at the automated teller machine a notice that:
(i) A fee will be imposed for providing electronic fund transfer services or for a balance inquiry; or
(ii) A fee may be imposed for providing electronic fund transfer services or for a balance inquiry, but the notice in this paragraph (c)(1)(ii) may be substituted for the notice in paragraph (c)(1)(i) only if there are circumstances under which a fee will not be imposed for such services; and
(2) Screen or paper notice. Provide the notice required by paragraphs (b)(1) and (b)(2) of this section either by showing it on the screen of the automated teller machine or by providing it on paper, before the consumer is committed to paying a fee.Id. § 205.16(c) (emphasis added). The inclusion of the word "and" connecting subparagraph (c)(1), the "on the machine" notification requirement, with subparagraph (c)(2), the "screen or paper" notification requirement, makes clear that in order to satisfy the Federal Reserve Board's regulations implementing the EFTA, an ATM operator is required to provide more than one form of notice, namely a posted notice on or at the machine and a form of notice on the screen or on paper. An "on the screen" (or a "screen or paper" notice to use the terminology of Regulation E) alone is not enough. This specific provision of Regulation E provides the foundation of Plaintiff's Amended Complaint. Plaintiff asserts that the Defendant's conduct, to wit: the failure to provide both forms of notice as specifically required in 12 C.F.R. §§ 205.16(c) and (e), was unlawful. In fact, Plaintiff pleads as much in the Amended Complaint. See Doc. No. 19 at ¶¶ 6 7. For the foregoing reasons, however, the Court finds that Defendant complied with the applicable provisions to which it was subject, and considers the assertion otherwise to be conclusory.
Beginning with the statute itself, there is no conjunctive term connecting the equivalent language in the EFTA. See, 15 U.S.C. § 1693b(d)(3)(B)(i) and (ii). Further, the Federal Reserve Board is not the only agency charged with enforcing the EFTA. The EFTA contains express provisions regarding the enforcement of the requirements. See 15 U.S.C. § 1693o. In particular, the EFTA assigns compliance enforcement to the Board of Directors of the FDIC in the case of a state chartered bank, like Defendant, that is insured by the FDIC but is not a member bank of the Federal Reserve System. 15 U.S.C. § 1693o(1)(C) . To that end, one of the enumerated purposes of the FDIC is to "make examinations of and to require information and reports from depository institutions." 12 U.S.C. §§ 1819 1820, see also, 12 U.S.C. § 1818(n).
This is consistent with the provisions of the Federal Deposit Insurance Act itself, which identifies the FDIC as the appropriate Federal Banking agency with oversight of Defendant as a state non-Federal Reserve member insured bank. 12 U.S.C. § 1813(q)(3). This is yet one example of the general tenet that the enforcement responsibilities of the Federal Reserve Board generally only extend to state-chartered banks that are members of the Federal Reserve System and to certain foreign banking organizations, and that other federal regulators are responsible for examining banks, thrift institutions, and credit unions under their jurisdiction and for taking enforcement action.
Of particular significance, 12 U.S.C. § 1818(t), defines the authority of the FDIC to take enforcement actions with respect to state non-Federal Reserve member banks as the equivalent of the Federal Reserve Board's authority with respect to member banks. For the purpose of enforcing the EFTA, in other words, what the Federal Reserve Board is to member banks of the Federal Reserve system, the FDIC is to non-member state chartered banks like Defendant. See also, 12 C.F.R. Appendix B to Part 205 (indicating that the FDIC is the federal agency responsible for enforcing Regulation E on nonmember insured banks).
12 U.S.C. § 1818 says in relevant part:
(t) Authority of FDIC to take enforcement action against insured depository institutions and institution-affiliated parties
(4) Corporation's powers; institution's duties
For purposes of this subsection —
(A) The Corporation shall have the same powers with respect to any insured depository institution and its affiliates as the appropriate Federal banking agency has with respect to the institution and its affiliates;
FDIC examiners and claims agents, appointed by the FDIC Board of Directors, conduct regular examinations of insured state chartered non-member banks, and have the authority to, inter alia, "administer oaths and affirmations, to take or cause to be taken depositions, and to issue, revoke, quash, or modify subpenas and subpenas duces tecum", while the FDIC itself "is empowered to make rules and regulations with respect to any such proceedings, claims, examinations, or investigations." 12 U.S.C. § 1818(n) (emphasis added). Pursuant to that responsibility, the FDIC promulgates a Compliance Examination Handbook that is specifically "designed as a reference tool for Compliance examination staff to use when conducting Compliance and Community Reinvestment Act (CRA) examinations and other supervisory activities." See, Compliance Examination Handbook, p. I-1.1, available online via the FDIC website at http://www.fdic.gov/regulations/compliance/manual/index_pdf.html. It should be noted that the Compliance Examination Handbook was recently revised in June 2009. Prior to that revision, the June 2006 Compliance Examination Handbook was in effect, and was the operative Handbook at the time of the transaction complained of in the Amended Complaint.
Part VI of the June 2006 Handbook includes a section specifically devoted to compliance with the requirements of the EFTA. See pp. VI-2.1 — VI-2.18 appended hereto as Attachment A. This section is organized into subheadings that provide explanations of the requirements corresponding with the section numbers of Regulation E. With respect to compliance with the EFTA regarding notification of ATM transaction fees, the Handbook includes the following guidance:
Disclosures at Automated Teller Machines — § 205.16
Section 205.16 requires disclosures at ATMs, before a fee can be charged to the consumer. This applies when a consumer uses an ATM that is operated by a financial institution or other company that does not hold the consumer's account.
In these cases, the operator of the ATM must disclose the fact that a fee will be charged for providing EFT services or a balance inquiry, AND the amount of the fee. The ATM operator may post this information in prominent and conspicuous location on or at the ATM. Alternatively, the operator may provide the notice on the ATM screen or on paper, before the consumer is obligated to pay a fee.
An ATM operator may only impose a fee on a consumer initiating an EFT service or balance inquiry if the consumer is provided with the required notices AND elects to continue the transaction after receiving the notice.
Attachment A at p. VI-2.8. Clearly, the inclusion of the word "alternatively" is significant and changes the notice requirements with which an ATM operator must comply when compared to the specific language of Regulation E noted above. Instead of explicitly requiring both an "on the machine" notice and a "screen or paper notice" consistent with 12 C.F.R. § 205.16, the language of the Handbook gives the ATM operator the choice of either posting the notice that a fee will be charged and the amount of the fee in a prominent and conspicuous location, or in the alternative, providing such notice on the screen or in paper form.
Under the EFTA, liability is not imposed in those cases in which a bank has acted in good faith "in conformity with any interpretation . . . by an official or employee of the Federal Reserve System duly authorized by the Board to issue such interpretations or approvals under such procedures as the Board may prescribe therefor . . ." 15 U.S.C. § 1693m(d)(1). In this case, the Court finds that Defendant's ATM conformed with the then-current Compliance Examination Handbook issued by the FDIC by providing on the screen notice ( see Handbook at p. VI-2.8). The FDIC has the statutory responsibility to conduct compliance examinations on nonmember banks and to appoint examiners in order to conduct those examinations ( 12 U.S.C. § 1818(n)), the EFTA specifically delegates enforcement of its provisions with respect to nonmember banks to the FDIC ( 15 U.S.C. § 1693o), and the Federal Reserve Board itself, through its own implementing regulation, identifies the FDIC as the enforcing agency for nonmember banks (12 C.F.R App. B).
Taken as a whole, the Amended Complaint fails to allege sufficient facts for the Court to infer that Defendant acted unlawfully. Resolving the disputed facts in favor of the Plaintiff, namely that there was no notification posted at or on the machine at the time of the transaction, and further disregarding the legal conclusions and conclusory assertions of the Amended Complaint, Plaintiff has failed to sufficiently allege a plausible claim. According to the FDIC's own Compliance Examination Handbook, compliance on the part of Defendant may have been satisfied by performing one of two alternatives, either providing "on the machine" notice or "on the screen" notice. Plaintiff has simply alleged that Defendant failed to accomplish one of those two alternatives.
Plaintiff opposes the motion to dismiss by making two arguments. Initially, Plaintiff argues that the Division of Consumer and Community Affairs of the Federal Reserve Board is the " sole 'authorized official or employee of the Federal Reserve System" that is authorized to render official interpretations of the EFTA pursuant to section 915(d). See Doc. No. 23 at § II. Plaintiff cites Appendix C of 12 C.F.R. Part 205 as authority for this argument. This argument fails to acknowledge the enforcement mechanisms of the EFTA and the scope of the Federal Reserve Board's authority. Within both the statutory language of the EFTA itself ( 15 U.S.C. § 1693o), the regulations promulgated by the Board of Governors of the Federal Reserve System pursuant to the EFTA ( 12 C.F.R. § 205 Appendix B), and the Federal Deposit Insurance Act ( 12 U.S.C. § 1818(t)), it is the FDIC that is responsible for enforcing the EFTA with respect to state chartered non-Federal Reserve member banks. Plaintiff further argues that the FDIC June 2009 Compliance Examination Handbook includes a material change to that section regarding EFTA, a change that now mirrors the corresponding language of 12 C.F.R. § 205.16(c)(1) and (2). Under the express language of the revised Handbook, an ATM operator is now expressly required to provide both types of notice, and gone is any use or reference to the term alternative options. This Court returns to the language of the EFTA itself. The section describing the good faith compliance with any rule, regulation, or interpretation, 15 U.S.C. § 1693m(d), notes that no liability is imposed in cases of good faith compliance "notwithstanding that after such act, omission, or failure has occurred, such rule, regulation, approval, or model clause is amended, rescinded, or determined by judicial or other authority to be invalid for any reason." Accordingly, the revisions to the Compliance Handbook, effective in the month following the transaction at issue here, have no impact on the Court's decision.
CONCLUSION
For the reasons hereinabove set forth, Defendant's Motion to Dismiss will be granted. An appropriate Order follows.ORDER OF COURT
AND NOW, to wit, this 15th day of October, 2009, in accordance with the foregoing Memorandum Opinion, Defendant's MOTION TO DISMISS is GRANTED and Plaintiff's First Amended Class Action Complaint, be and the same is hereby DISMISSED.Electronic Fund Transfer Act Introduction
This section fully incorporates the examination procedures issued under DCA RD Memo 98-001: Electronic Fund Transfer Act (Regulation E) Examination Procedures.
As defined in the EFTA, and Section 205.3(b) of Regulation E, the term "electronic fund transfer," refers to a transaction initiated through an electronic terminal, telephone, computer, or magnetic tape that orders, instructs, or authorizes a financial institution to either credit or debit a consumer's asset account. The term electronic terminal includes point-of-sale terminals, automated teller machines, and cash dispensing machines. The consumer is usually issued a card or a code (known as an access device), or both, that may be used to initiate such transfers.
Exemptions — § 205.3(c)
The following types of electronic fund transfers are not covered by the EFTA:
• Any transfer of funds originated by check, draft, or similar paper instrument; or any payment made by check, draft, or similar paper instrument at an electronic terminal. • Check guarantee or authorization services that do not directly result in a debit or credit to a consumer's account. • Any transfer of funds for a consumer within a system that is used primarily to transfer funds between financial institutions or businesses. An example is a wire transfer of funds for a consumer through the Fedwire or other similar network. • Any transfer of funds which has as its primary purpose the purchase or sale of securities or commodities regulated by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), purchased or sold through a brokerdealer regulated by the SEC or through a future commission merchant regulated by the CFTC, or held in book-entry form by a Federal Reserve Bank or federal agency. • Intra-institutional automatic transfers under an agreement between a consumer and a financial institution: º between the consumer's account and the institution itself (except that § 205.10(e) regarding compulsory use and sections 915 and 916 of the EFTA regarding civil and criminal liability are applicable); º between two accounts of the consumer within the institution; or º from the consumer's account to a family member's account within the institution. • Transfers initiated by telephone between a consumer and a financial institution making the transfer and does not take place under a telephone, bill payment, or other plans contemplating periodic or recurring transfers. • Preauthorized transfers to or from an account held at a financial institution with assets of $100 million or less on the preceding December 31 (except that § 205.10(e) and sections 915 and 916 of the EFTA are applicable).Special Requirements — § 205.4
Section 205.4(a) requires that disclosures be clear and readily understandable, in writing, and in a form the consumer may keep.Section 205.4(b) permits, at the institution's option, the disclosure of additional information, and allows disclosures required by other laws (for example, Truth in Lending disclosures) to be combined with Regulation E disclosures.
Section 205.4(d)(1) permits the institution holding an account to combine required disclosures into a single statement if a consumer holds two or more accounts at an institution. Thus, a single periodic statement or error resolution notice is sufficient for multiple accounts. In order to comply with Section 205.4(d)(2), an institution need provide only one set of disclosures for a joint account.
Section 205.4(e) permits two or more institutions that jointly provide EFT services to contract among themselves to fulfill the requirements that the regulation imposes on any or all of them. When making disclosures under Section 205.7 (Initial Disclosures) and Section 205.8 (Change in Terms; Error Resolution Notice), an institution in a shared system need only make those required disclosures that are within its knowledge and the purview of its relationship with the consumer for whom it holds an account.
Issuance of Access Devices — § 205.5
Section 205.5 governs the issuance of access devices. For access devices that also constitute credit cards, the issuance rules of Regulation E apply if the only credit feature is a preexisting credit line attached to the asset account to cover overdrafts (or to maintain a specified minimum balance). Regulation Z rules apply if there is another type of credit feature, for example, one permitting direct extensions of credit that do not involve the asset account. In general, an institution may issue an access device to a consumer only if:
• it is requested (in writing or orally) or applied for; or • it is a renewal of, or in substitution for, an accepted access device (as defined in § 205.2(a)). An institution may issue an access device to each account holder (on a joint account) for whom the requesting holder specifically requests an access device.An institution may issue an unsolicited access device only if the following four conditions are satisfied:
1. the access device is not validated, meaning, the device is not yet activated; 2. the access device is accompanied by the explanation that it is not validated and of how it may be disposed of if the consumer does not wish to validate it; 3. the access device is accompanied by a complete disclosure, in accordance with § 205.7, of the consumer's rights and liabilities that will apply if the access device is validated; and 4. the access device is validated only upon oral or written request from the consumer and after a verification of the consumer's identity by some reasonable means. These conditions are intended to reduce the potential for unauthorized use if the access device is lost or stolen en route to the consumer and to ensure that the consumer is informed of account terms and conditions before deciding whether to accept the responsibilities of having an access device.Liability of Consumers for Unauthorized Transfers — § 205.6
A consumer may be held liable for unauthorized EFTs (as defined in § 205.2(m)) only if:
• the institution has provided the following written disclosures to the consumer: º a summary of the consumer's liability for unauthorized EFTs; º the telephone number and address for reporting that an unauthorized EFT has been or may be made; and º the institution's business days. • the access device is accepted (as defined in § 205.2(a)); and • the institution has provided a means to identify the consumer to whom the access device was issued.Consumer Liability for Unauthorized Transfers:
Electronic Fund Transfer Act-Regulation E ( 12 CFR 205.6) Event Timing of consumer Maximum liability notification of bank Loss or theft of access device Within two business days after Lesser of $50, OR total amount of learning of loss or theft. unauthorized transfers. Loss or theft of access device More than two business days after Lesser of $500, OR the sum of: learning of loss or theft. (a) $50 or the total amount of unauthorized transfers occurring in the first two business days, whichever is less, AND (b) the amount of unauthorized transfers occurring after two business days and before notice to the institution. Loss or theft of access device More than 60 calendar days after For transfers occurring within the 60-day transmittal of statement showing first period, the lesser of $500, OR the sum of: unauthorized transfer made with (a) lesser of $50 or the amount of access device. unauthorized transfers in first two business days, AND (b) the amount of unauthorized transfers occurring after two business days. For transfers occurring after the 60-day period, unlimited liability (until the institution is notified). Unauthorized transfer(s) Within 60 calendar days after No liability. appearing on periodic statement transmittal of the periodic statement. (no use of access device) Unauthorized transfer(s) More than 60 calendar days after Unlimited liability for unauthorized appearing on periodic statement transmittal of the periodic statement transfers occurring 60 calendar days after (no use of access device) showing first unauthorized transfer. the periodic statement and before notice to the institution. Section 205.6(b)(4) states that if a consumer's delay in notifying an institution was due to extenuating circumstances, such as extended travel or hospitalization, the time periods for notification specified above shall be extended to a reasonable time. Also, Section 205.6(b)(6) provides that if any lesser liability limits are imposed by applicable state law or by an agreement with the consumer, those limits shall apply instead of the limits set by this section.These liability provisions apply to unauthorized EFTs initiated by a combined access devicecredit card, including an access device with overdraft privileges. These provisions do not apply to the unauthorized use of a combined access device-credit card when no EFTs are involved (for example, when the card is used to draw cash advances directly from a credit line).
Notice to an institution about unauthorized use is considered given when the consumer takes whatever steps are reasonably necessary to provide the institution with the pertinent information, whether or not a particular employee actually receives the information. At the consumer's option, notice may be given in person, by telephone, or in writing. Notice in writing is considered given at the time the consumer deposits the notice in the mail or delivers the notice for transmission by any other usual means to the institution. Notice may also be considered given when the institution becomes aware of circumstances that indicate an unauthorized transfer has been or may be made.
Initial Disclosure of Terms and Conditions — § 205.7
The institution must provide the consumer with the following disclosures, in written, retainable form, before the first EFT is made or at the time the consumer contracts for an EFT service: 12 CFR 205
• a summary of the consumer's liability under Section 205.6 or other applicable law or agreement; • the telephone number and address of the person or office to notify in the event of loss or unauthorized use; • the institution's business days; • types of EFTs the consumer may make and any limitations on the frequency and dollar amount of transfers (the details of the limitations may be withheld if the security of the system requires confidentiality); • any charges for EFTs or for the right to make EFTs; • a summary of the consumer's right to receive documentation of EFTs as provided in Sections 205.9, 205.10(a) and 205.10(d); • a summary of the consumer's right to stop payment of a preauthorized EFT and the procedure for initiating a stop-payment order; • a summary of the institution's liability for its failure to make or stop certain transfers; • the circumstances under which the institution in the ordinary course of business will disclose information concerning the consumer's account to third parties; and • a notice which is substantially similar to the notice in Appendix A of concerning error resolution procedures and the consumer's rights under them.Change in Terms; Error Resolution Notice — § 205.8
If a change in terms is contemplated, the institution must mail or deliver a written notice to the consumer at least 21 days before the effective date of any change in a term or condition required to be disclosed under § 205.7(b) if the change would result in any of the following: • increased fees or charges; • increased liability for the consumer; • fewer types of available EFTs; or • stricter limitations on the frequency or dollar amounts of transfers. If an immediate change in terms or conditions is necessary to maintain or restore the security of an EFT system or account, prior notice need not be given by the institution. However, if such a change is to be permanent, the institution must provide written notice of the change to the consumer on or with the next regularly scheduled periodic statement or within 30 days, unless disclosures would jeopardize the security of the system or account.For accounts to or from which EFTs can be made, an error resolution notice (as set forth in 12 CFR 205 Appendix A — Model Form A-3) must be mailed or delivered to the consumer at least once each calendar year. Alternatively, an abbreviated error resolution notice substantially similar to the notice set out in Appendix A (Model Form A-3) may be included with each periodic statement.
Documentation of Transfers — § 205.9
Receipts given at electronic terminals are required to provide specific documentation. The receipt must be made available at the time the transfer is initiated at an electronic terminal and must include, as applicable:
• amount of the transfer — a charge for making the transfer may be included in the amount if the terminal is owned or operated by an entity other than the institution that holds the consumer's account, provided the charge is disclosed on the receipt and on a sign posted on or at the terminal; • date — the date the consumer initiates the transfer; • type of transfer and type of account — descriptions such as "withdrawal from checking" or "transfer from savings to checking" are appropriate. This is true even if the accounts are only similar in function to a checking account (such as a share draft or NOW account) or a savings account (such as a share account). If the access device used can only access one account, the type-of-account requirement does not apply; • a number or code identifying the consumer's account(s), or the access device used to initiate the transfer. The number and code need not exceed four digits or letters to comply; • location of the terminal — the location where the transfer is initiated may be given in the form of a code or terminal number; and • the name of any third party to or from whom funds are transferred — a code may be used to identify the party, but only if the code is explained on the receipt. This requirement does not apply if the name of the party is provided by the consumer in a manner the terminal cannot duplicate on the receipt, such as on a payment stub. An electronic terminal receipt need not be provided for electronic transfers initiated by home banking equipment.Section 205.9(b) provides the documentation requirements for periodic statements. Periodic statements must be sent monthly if an EFT has occurred, or quarterly if no EFT has occurred. For each EFT made during the cycle, the statement must include, as applicable:
• amount of the transfer — if a charge was imposed at an electronic terminal by the owner or operator of the terminal, that charge may be included in the amount; • date the transfer was posted to the account; • type of transfer(s) and type of account(s) to or from which funds were transferred; • for each transfer (except deposits to the consumer's account) initiated at an electronic terminal, the location that appears on the receipt. If an identification code was used, that identification code must be given with one of the following descriptions: º street address of the terminal and the city, state, or foreign country; º a generally accepted name for the location of the terminal (such as an airport, shopping center, or branch of an institution), and the city, state, or foreign country; or º name of the entity (except the institution providing the statement) at whose place of business the terminal is located, such as a store, and the city, state, or foreign country; • the name of any third party payee or payor; • the account number(s); • the total amount of any fees and charges, other than a finance charge as defined by Regulation Z, assessed during the period for making EFTs, the right to make EFTs, or for account maintenance; • the balance in the account at the beginning and close of the statement period; • the address and telephone number to be used by the consumer for inquiries or notice of errors. If the institution has elected to send the abbreviated error notice with every periodic statement, the address and telephone number may appear on that document; and • if the institution has provided a telephone number which the consumer can use to find out whether or not a preauthorized transfer has taken place, that telephone number. Where a consumer's passbook may not be accessed by an EFT other than preauthorized transfers to the account, a periodic statement need not be sent, provided that the financial institution updates the consumer's passbook or provides the required information on a separate document at the consumer's request. To update the passbook, the amount and date of each EFT made since the passbook was last presented must be listed.If the consumer has a non-passbook account that may not be accessed by an EFT other than preauthorized transfers to the account, a periodic statement must be sent at least quarterly.
Preauthorized Transfers — § 205.10
Section 205.10(a)(1) covers preauthorized transfers to a consumer's account. This section requires that, when an account is scheduled to be credited by a preauthorized EFT from the same payor at least once every 60 days, some form of notice must be provided to the consumer so that the consumer can find out whether or not the transfer occurred.
The notice requirement will be satisficd by the payor's providing notification to the consumer that the transfer has been initiated. If the payor does not provide notice to the consumer, the burden is on the institution to adopt one of the three alternative procedures for supplying the notice.
1. The institution can choose to give the consumer oral or written notice every time a preauthorized transfer occurs or fails to occur. 2. The second alternative is that the institution can notify the consumer within 2 business days after the preauthorized transfer occurred. 3. As a third alternative, the institution can establish a telephone line that the consumer may call to find out whether a preauthorized transfer has occurred. The telephone number must be disclosed on the initial disclosures and on each periodic statement. The telephone line must be "readily available" so that consumers calling to inquire about transfers are able to have their calls answered with little difficulty. In addition, it is expected that these telephone notice systems will be designed so that consumers do not have to bear the cost of long distance calls within the institution's service area to inquire about their transfers. Therefore, a multi-branch institution with a statewide customer base could provide consumers with either a toll-free number or designate local numbers for different communities within the state. Section 205.10(a)(3) requires an institution that receives a preauthorized transfer to credit the consumer's account as of the day the funds are received.Section 205.10(b) states that preauthorized transfers from a consumer's account may only be authorized by the consumer in writing, signed or similarly authenticated by the consumer. Written authorizations include electronic authorizations (such as via a home banking system) which are similarly authenticated by the consumer as long as there are means to identify the consumer (such as a security code) and to make available a paper copy of the authorization (automatically or upon request). In all cases, the party that obtains the authorization from the consumer must provide a copy to the consumer.
Section 205.10(c) gives the consumer the right to stop payment of a preauthorized transfer from an account. The consumer must notify the institution orally or in writing at any time up to three business days before the scheduled date of the transfer. The institution may require written confirmation of an oral stop payment order to be made within 14 days of the consumer's oral notification. However, the institution may only impose the written confirmation requirement if, at the time the consumer made the oral stop payment order, the institution informed the consumer that written confirmation is required and told the consumer the address to which the confirmation should be sent. If the consumer fails to provide the written confirmation, the oral stop payment order ceases to be binding after 14 days.
Section 205.10(d) deals with a preauthorized transfer from a consumer's account that varies in amount from the previous transfer under the same authorization or the preauthorized amount. In the event such a transfer is scheduled to occur, the institution or designated payee must mail or deliver to the consumer a written notice, at least 10 days before the scheduled transfer date, containing the amount and scheduled date of the transfer. However, if the institution or the payee informs the consumer of the right to receive advance notice of varying transfers, the consumer may elect to receive notice only when the amount varies from the most recent transfer by more than an agreed upon amount or when it falls outside a specified range.
Section 205.10(e) prohibits the institution from conditioning an extension of credit on the condition of repayment by means of preauthorized EFT, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer's account. The section also prohibits anyone from requiring the establishment of an account for receipt of EFTs with a particular institution either as a condition of employment or the receipt of a government benefit.
Procedures for Resolving Errors — § 205.11
Section 205.11 sets forth the definition of "error", the steps the consumer must take when alleging an error in order to receive the protection of the EFTA and Regulation E, and the procedures that an institution must follow to resolve an alleged error.
Section 205.11(a), defines the term "error" to mean:
• an unauthorized EFT; • an incorrect EFT to or from the consumer's account; • the omission from a periodic statement of an EFT to or from the consumer's account that should have been included; • a computational or bookkeeping error made by the institution relating to an EFT; • the consumer's receipt of an incorrect amount of money from an electronic terminal; • an EFT not identified in accordance with the requirements of Sections 205.9 or 205.10(a); or • a consumer's request for any documentation required by Sections 205.9 or 205.10(a), or for additional information or clarification concerning an EFT. The term "error" does not include a routine inquiry about the balance in the consumer's account or a request for duplicate copies of documentation or other information that is made only for tax or other record-keeping purposes.A notice of error is an oral or written notice indicating why the consumer believes an error exists that is received by the institution not later than 60 days after a periodic statement or other documentation which first reflects the alleged error is provided. The notice of error must also enable the institution to identify the consumer's name and account number, and, to the extent possible, the type, date and amount of the error. An institution may require a consumer to give written confirmation of an error within 10 business days of giving oral notice. The institution shall provide the address where confirmation must be sent. If written confirmation is not received, the institution must still comply with the error resolution procedures, but it need not provisionally credit the account if it takes longer than 10 business days to resolve the matter.
After receiving a notice of error, the institution is required to promptly investigate the alleged error and transmit the results to the consumer within 10 business days. As an alternative to this, the institution may take up 45 calendar days to complete its investigation provided it:
• provisionally credits the funds (including interest, where applicable) to the consumer's account within the 10 business-day period; • advises the consumer within 2 business days of the provisional crediting; and • gives the consumer full use of the funds during the investigation. An institution need not provisionally credit the account if: • the consumer fails to provide the required written confirmation of an oral notice of an error; or • the notice of error involves an account subject to the margin requirements or other aspects of Regulation T (12 CFR 220). If, after investigating the alleged error, the institution determines that an error has occurred, it shall promptly (within one business day after such determination) correct the error, including the crediting of interest (if applicable). The institution shall provide within three business days of the completed investigation an oral or written report of the correction to the consumer and, as applicable, notify the consumer that the provisional credit has been made final.If the institution determines that no error occurred or that an error occurred in a different manner or amount from that described by the consumer, the institution must mail or deliver a written explanation of its findings within three business days after concluding its investigation. The explanation must include a notice of the consumer's rights to request the documents upon which the institution relied in making its determination.
Upon debiting a provisionally credited amount, the institution shall notify the consumer of the date and amount of the debit, of the fact that the institution will honor (without charge) checks, drafts or similar paper instruments payable to third parties and preauthorized debits for five business days after transmittal of the notice. The institution need honor only items that it would have paid if the provisionally credited funds had not been debited. Upon request from the consumer, the institution must promptly mail or deliver to the consumer copies of documents upon which it relied in making its determination.
If a notice involves an error that occurred within 30 days after the first deposit to the account was made, the time periods are extended from 10 and 45 days, to 20 and 90 days, respectively.
If the notice of error involves a transaction that was not initiated in a state or resulted from a point-of-sale debit card transaction, the 45-day period is extended to 90 days.
Relation to State Law — § 205.12
Section 205.12 sets forth the relationship between the EFTA and the Truth in Lending Act (TILA) with regard to the issuance of access devices, consumer liability, and investigation of errors. This section also provides standards for determination and procedures for applying for state exemptions.
The EFTA governs:
• the issuance of debit cards and other access devices with EFT capabilities; • the addition of EFT features to credit cards; and • the issuance of access devices whose only credit feature is a pre-existing agreement to extend credit to cover account overdrafts or to maintain a minimum account balance. The TILA governs: • the issuance of credit cards as defined in Regulation Z, 12 CFR 226.2(a)(15); • the addition of a credit feature to a debit card or other access device; and • the issuance of dual debit/credit cards except for access devices whose only credit feature is a pre-existing agreement to cover account overdrafts or to maintain a minimum account balance. The EFTA and Regulation E preempt inconsistent state laws, but only to the extent of the inconsistency. The Federal Reserve Board is given the authority to determine whether or not a state law is inconsistent. An institution, state, or other interested party may request the Board to make such a determination. A state law will not be deemed inconsistent if it is more protective of the consumer than the EFTA or Regulation E. Upon application, the Board has the authority to exempt any state from the requirements of the Act or the regulation for any class of EFTs within a state with the exception of the civil liability provision.Administrative Enforcement — § 205.13 and § 917
Section 917 specifically directs the federal financial institution supervisory agencies to enforce compliance with the provisions of the EFTA.
Institutions are required to maintain evidence of compliance with the EFTA and Regulation E for a period of not less than two years. This period may be extended by the agency supervising the institution. It may also be extended if the institution is subject to an action filed under Sections 910, 915 or 916(a) of the EFTA which generally apply to the institution's liability under the EFTA and Regulation E. Persons subject to the EFTA who have actual notice that they are being investigated or subject to an enforcement proceeding must retain records until disposition of the proceeding. Records may be stored on microfiche, microfilm, magnetic tape, or in any other manner capable of accurately retaining and reproducing the information.
Services Offered by Provider Not Holding Consumer's Account — § 205.14
This section applies in limited situations where the institution provides EFT services and issues access devices, but does not hold the asset account and no agreement exists between the service provider and the account at the institution. The transfers initiated by the service-providing institution are often cleared through an automated clearinghouse (ACH). This section divides the responsibilities between the two institutions with the greater responsibility placed on the service-providing institution.
The responsibilities of the service-providing institution are set forth in Section 205.14(b)(1) and (2). The duties of the account-holding institution are found in Section 205.14(c)(1) and (2).
Electronic Fund Transfer of Government Benefits — § 205.15
Section 205.15 contains the rules that apply to electronic benefit transfer (EBT) programs. It provides modified rules on the issuance of access devices, periodic statements, initial disclosures, liability for unauthorized use, and error resolution notices.
Section 205.15(a) provides that a government agency is deemed to be a financial institution and subject to the regulation, if it directly or indirectly issues an access device to a consumer for use in initiating an EFT of government benefits from an account. Needs-tested EBT programs established under state or local law or administered by a state or local agency (such as food stamp programs) are exempt. Federally administered EBT programs and state and local employment-related EBT programs (such as retirement and unemployment benefits) remain covered by Regulation E. The term account means an account established by a government agency for distributing government benefits to a consumer electronically, such as through ATMs or point-of-sale terminals.
A government agency need not furnish the periodic statement required by § 205.9(b) if the agency makes available to the consumer:
• the consumer's account balance through a readily available telephone line and at a terminal; and • a written history of the consumer's account transactions that covers at least 60 days preceding the date of the consumer's oral or written request. A government agency that does not furnish periodic statements in accordance with the above shall be subject to special modified requirements as set forth in § 205.15(d).Disclosures at Automated Teller Machines — § 205.16
Section 205.16 requires disclosures at ATMs, before a fee can be charged to the consumer. This applies when a consumer uses an ATM that is operated by a financial institution or other company that does not hold the consumer's account.
In these cases, the operator of the ATM must disclose the fact that a fee will be charged for providing EFT services or a balance inquiry, AND the amount of the fee. The ATM operator may post this information in prominent and conspicuous location on or at the ATM. Alternatively, the operator may provide the notice on the ATM screen or on paper, before the consumer is obligated to pay a fee.
An ATM operator may only impose a fee on a consumer initiating an EFT service or balance inquiry if the consumer is provided with the required notices AND elects to continue the transaction after receiving the notice.
Requirements for Electronic Communications — § 205.17
Section 205.17 contains the rules for electronic delivery of required disclosures, when consumers have consented to receive them electronically. A financial institution that delivers disclosure electronically has two options under the regulation. The financial institution must:
1. Send the disclosure to the consumer's electronic address; or 2. Make the disclosure available at another location such as an Internet web site; AND i. Alert the consumer of the disclosure's availability by sending a notice to the consumer's electronic address (or to a postal address, at the financial institution's option). The notice shall identify the account involved and the address of the Internet web sit or other location where the disclosure is available; and ii. Make the disclosure available for at least 90 days from the date the disclosure first becomes available or from the date of the notice alerting the consumer of the disclosure, whichever comes later. When a disclosure provided by an electronic means is returned to a financial institution as undeliverable, the financial institution shall take reasonable steps to attempt redelivery using information in its files.Suspension of Obligations — § 912; Waiver of Rights — § 914
Section 912 suspends, under certain conditions, a consumer's obligation to another person in the event a malfunction in an EFT system prevents payment to the person, until the malfunction is corrected and the EFT may be completed.
Section 914 states that no writing or other agreement between a consumer and any other person may contain any provision that constitutes a waiver of any right conferred or cause of action created by the EFTA. However, Section 914 does not prohibit any writing or other agreement that grants a consumer greater protection or a more extensive right or remedy than that provided by the EFTA or a waiver agreement to settle a dispute or action.
Liability of Financial Institutions — § 910; Civil Liability — § 915; Criminal Liability — § 916
Section 910 provides that institutions subject to the EFTA are liable for all damages proximately caused by failure to make an EFT in accordance with the terms and conditions of an account, in a timely manner, or in the correct amount, when properly instructed to do so by a consumer. However, Section 910 also sets forth certain exceptions when an institution would not be liable for failing to make an EFT. Section 910 also provides that institutions are liable in certain circumstances for failure to make an electronic fund transfer due to insufficient funds and failure to stop payment of preauthorized debits.
A financial institution may also be liable for civil damages if it fails to comply with the EFTA. The civil liability provisions are found in § 915. The damages an institution would have to pay in a successful individual action are actual damages and statutory damages between $100 and $1,000, as determined by the court. In a successful class action suit, the institution would have to pay actual damages and statutory damages up to the lesser of $500,000 or 1% of the institution's net worth. In both successful individual and class actions, court costs and a reasonable attorney's fee would be recovered by the consumer.
The institution generally will not be liable for violations caused by unintentional bona fide errors that occurred despite the maintenance of procedures reasonably adopted to avoid such errors. Also, the institution will not be liable if it acted in accordance with an official interpretation issued by the Board of Governors of the Federal Reserve System or its authorized staff. An institution cannot be held liable for improper disclosure if it utilized in an appropriate manner a model clause approved by the Board of Governors. Further, an institution can avoid liability by notifying the consumer of a violation, taking corrective action, including adjustment to the consumer's account and payment of appropriate damages prior to a court case.
Section 916 sets forth provisions for criminal liability. Penalties under these provisions run from a $5,000 fine or imprisonment of not more than one year, or both, for knowing and willful failures to comply with the EFTA, up to a $10,000 fine or imprisonment of not more than ten years, or both, for the fraudulent use of a debit card.