STATUS OF ATM'S UNDER STATE BRANCHING

LAWS

WEDNESDAY, SEPTEMBER 19, 1984

U.S. SENATE,

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,

Washington, DC. The committee met at 10 a.m., in room SD-538, Dirksen Senate Office Building, Senator Slade Gorton presiding. Present: Senators Gorton, Hecht, and Trible.

OPENING STATEMENT OF SENATOR GORTON

Senator GORTON. The purpose of this hearing is to hear testimony on S. 2898, the Banking Convenience Act of 1984, introduced by Senator Trible and cosponsored by Senator Humphrey. I want to thank the witnesses for coming to appear before us today.

The problem that gives rise to these hearings is a collision between new technology and old law. In a recent decision, a court held that the definition of "branch banks" contained in the McFadden Act extended to the automatic teller machine [ATM], even if the machine was not owned by the banks in question. Indeed, the statutory language is quite supportive of this conclusion, although it is questionable whether this could conceivably have been the intent of Congress when it drafted the McFadden Act, before I was even born.

The situation is complicated, both by desires to avoid back door circumvention of interstate banking bans, and by genuine ambiguity over the scope of State versus Federal authority in areas that were virtually unforeseen only a few years ago, let alone in 1927. There must be, however, some resolution of these problems. In the first place, the consumer benefits provided by ATM's are too dramatic and too clear to our citizens to allow us to deny them now. In my own State, several hundred banks of all descriptions belong to shared ATM networks of both regional and national scope and regard their participation in these networks as critical to their ability to survive. The largest grocery store chain in Washington State is moving to implement an ATM network with 150 affiliated banks and savings and loan institutions. It has become a constituency I could not possibly ignore; nor, given my longstanding interest in consumer protection legislation, would I want to. Should it appear that the continued existence of networks in my State is in jeopardy, I would not be inclined to sit back and do nothing while the courts play out the issue.

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Furthermore, we in Congress might as well accustom ourselves to revisiting these issues more frequently than has been the case in the past. Given the pace of change in this area in the last 15 years, what will the next decade bring? Surely, those changes will be at least as dramatic.

I would like to commend Senators Trible and Humphrey for their efforts in this complicated but extremely important area. I am not, at present, a cosponsor of S. 2898, but I am eager to learn from the testimony to be presented today, and I hope these hearings will move us closer to a resolution of the problem.

Senator Hecht.

Senator HECHT. No statement.

Senator GORTON. Senator Trible, the sponsor, is here.

OPENING STATEMENT OF SENATOR TRIBLE

Senator TRIBLE. Mr. Chairman, I thank you for your excellent statement. I must say at the outset I didn't realize the McFadden Act was such an ancient law.

Senator GORTON. That really boggles your mind, doesn't it? Senator TRIBLE. Perhaps it is time to reexamine that law in all of its respects.

Mr. Chairman, let me say my purpose in introducing this legislation is quite simple and straightforward. My purpose is to preserve and promote the ability of national banks to participate in shared automated teller machine networks and to protect the substantial consumer benefits of shared ATM's that are now jeopardized by a recent Federal court decision.

It is my hope today as we hear from many distinguished witnesses that we can examine the substantial benefits that accrue to the public, to the financial services industry generally, and to our economy; that we can take a hard look at the relevant Federal laws and regulations and the impact of this decision and determine after hearing the testimony today and tomorrow what kind of action ought to be undertaken to promote and preserve the consumer benefits that are real and substantial.

I thank you, Mr. Chairman, and I look forward to the testimony today.

[Copy of proposed bill S. 2898 follows:]

a

98TH CONGRESS

2D SESSION

S. 2898

To amend section 5155 of the Revised Statutes.

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IN THE SENATE OF THE UNITED STATES

AUGUST 1 (legislative day, JULY 30), 1984

Mr. TRIBLE (for himself and Mr. HUMPHREY) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To amend section 5155 of the Revised Statutes.

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Be it enacted by the Senate and House of Representa

2 tives of the United States of America in Congress assembled,

3 That this Act may be cited as the "Banking Convenience Act 4 of 1984".

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SEC. 2. Section 5155 of the Revised Statutes (12 6 U.S.C. 36) is amended by adding at the end thereof the fol

7 lowing:

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“(i)(1) Notwithstanding any other provision of this sec

9 tion or of a similar State law, a national bank may share, or 10 permit its customers to use, an automated device that is not 11 established by that bank, and such automated device shall not

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1 be considered a branch of that bank within the meaning of

2 subsection (f) of this section.

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"(2) For the purpose of this subsection

"(A) an automated device is established by a na

tional bank only if it is owned or rented by that bank; “(B) an automated device is not established by a national bank if the bank is assessed transactional fees

or similar charges for its use; and

"(C) the term 'automated device' includes, without limitation, automated teller machines, customer bank communication terminals, point-of-sale terminals, and cash dispensing machines.".

Senator GORTON. Thank you.

I have statements which have been submitted on behalf of Marine Midland and on behalf of Plus System, Inc., both of which will be included in the record.

MARINE MIDLAND BANK, N.A.

140 Broadway

New York, New York 10015

STATEMENT OF

MARINE MIDLAND BANK, N.A.

IN SUPPORT OF THE

BANKING CONVENIENCE ACT OF 1984 (S. 2898)

Marine Midland Bank, N.A. supports and encourages the passage of S. 2898, the "Banking Convenience Act of 1984", introduced by Senator Trible and Senator Humphrey on August 1, 1984.

Background

The Independent Bankers Association of New York, Inc. v. Marine Midland Bank, N.A., the United States District Court for the Western District of New York enjoined Marine Midland, a national bank, from allowing its customers to make withdrawals and deposits and obtain credit card cash advances at an automated teller machine (ATM) owned and operated by Marine Midland's co-defendant, Wegmans Food Markets, Inc. and located in a Wegmans supermarket in Canandaigua, New York.

The Court concluded that this use of the Wegmans ATM made the ATM a "branch" of Marine, which Marine could not establish under Federal law and the New York branching restrictions that Federal law incorporates. The Court's decision has been appealed.

Effects of Decision

Unless S. 2898 is enacted, affirmance of the District Court's decision could severely damage national banks' ability to compete with state-chartered banks, thrift institutions and others in providing electronic funds transfer (EFT) services through shared ATM networks. Affirmance could also jeopardize the health and continued existence of those networks. Further, the decision could deprive consumers of the convenience (and reduced costs) shared networks make possible and, by largely precluding national bank participation in these networks, reduce their banking alternatives.

S. 2898 will ratify established interpretations of the Comptroller of the Currency that allow national banks to participate equally with other institutions in shared ATM networks.

Effect on National Banks

If the District Court's conclusion that an ATM used but not owned or rented by a national bank is a "branch" of the bank stands, national banks cannot participate fully in multi-state shared ATM networks (and 21 of the 24 largest newtworks have ATMs in more than one state), because Federal law prohibits national banks from branching across state lines. State banks and thrift institutions, however, generally can share ATMs in other states.