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the McFadden Act and the Douglas Amendment to the Bank Holding Com
The Status Quo
The current status of ATM placement, function and regulation is
determined by federal statute, Appellate and Supreme Court decisions
and state law.
The relevant federal statutes are 12 U.S.c. 5636 and 81.
tion 81 requires each national bank to conduct its "general busi
at its main office, as stipulated in its organizational cer
tificate, and at its "branch or branches, if any, established or
maintained by it in accordance with the provisions of (12 U.S.C.
Section 36 (c) provides that a national bank may not "estab
lish and operate new branches" except within the state in which the
bank is located, and then only to the extent that state-chartered
banks in that state are permitted to establish and operate branches.
The term "branches" is defined in Section 36 (f) as including "any
branch bank, branch office, branch agency, additional office, or
any branch place of business. .at which deposits are received, or checks paid, or money lent."
The Supreme Court and three U.S. Courts of Appeal have pointed
out that the scope of the term "branch" is not limited to offices
which perform the three functions designated in Section 36 (f) but
also is intended by Congress to include any place at which a bank
transacts "any business carried on at the main office."
In one of
Colorado ex rel. State Banking Board v.
Bank of Fort Collins, the Tenth Circuit Court of Appeals held that
a national bank's off-premises customer-bank communications terminal
(CBCT) was a "branch" not only because it permitted the bank to re
ceive deposits, one of the activities expressly described in Section
36 (f), but also because it permitted the bank's customers to per
form other "traditional banking transactions," namely, the withdraw
al of funds and the transfer of funds from one account to another.
And, in IBAA V. Smith, the U.S. Court of Appeals for the District
of Columbia Circuit held that credit card and loan payments made by
means of CBCT's were banking transactions within the scope of Sec
tion 36(f) even if they could not be considered to be "deposits".
Relying upon the Supreme Court's analysis in Plant City, the
Court held that considerations of "competitive equality" between
state and federal banks, rather than private contractual relation
ships between a bank and its customers, determine whether a facility
is a "branch".
Because banks with CBCT's could provide banking
services to their customers away from their offices and thereby
obtain a competitive advantage over banks which did not have CBCT's,
the Court held that CBCT's were "branches" under Section 36 (f).
In essence, by application of the McFadden Act, customdr bank
communication terminals owned by national banks which accept depos
its and disburse funds are branches and are controlled by state
It is by virtue of the application of the McFadden Act that
state law is controlling in the ATM area and any amendment to the
McFadden Act disturbs the status quo.
The current system is based on state law and the OCC-develop
ed position that a CBCT used by a national bank's customers is not
a branch unless the bank has a possessory or ownership interest in
the CBCT and has thereby established the CBCT within the meaning of Section 36(f). States have enacted laws on the ownership, location,
operation and permissible functions of ATMs which have made possible the interchange networks.
Congress, following the release of the
Final Report of the National Commission on Electronic Fund Trans
fers, chose to address various consumer protection aspects (e.g.,
liability for unauthorized transfers), but did not choose to over
turn state authority or expand the legal rights of the Occ.
the system has been able to provide an incredible level of services
Today there are as many as 200 shared re-
All of these systems have enjoyed the blessing of state laws,
most of which distinguish between ATMs and other bank facilities.
In a recent CSBS survey of state laws, (draft results attached)
numerous state statutes were found to control important aspects of ATM placement, sharing, use and permissible functions within states'
That survey found: *
23 state statutes cover ATM deployment by national
37 states require or expressly permit ATM sharing,
8 states of the 42 with statutes explicitly dealing
Nearly all states with state statutes have a
Both this and earlier CSBS surveys of state law and regulation
found a high availability of statewide EFT services whether by placement of facilities or by agreements to offer services through
shared, existing facilities.
In this survey, 31 states provide for
statewide offering of EFT services.
In an earlier CSBS survey,
which included regulatory interpretations of statutes by state
supervisors, 36 states specifically allowed access to ATMs by cus
tomers of out-of-state banks, under varying circumstances.
these survey results are preliminary, subject to review and possible
revision by state regulatory authorities, they give a fairly accur
ate reading of the status quo under which both state and national
*Survey results are preliminary, subject to review and possible revision by state regulatory authorities.
In April of this year, the United States District Court for
the Western District of New York held that bank utilization of an
ATM owned by a third party to allow customers to make deposits and
withdrawals from bank accounts held with that bank constitutes a
"branch" within the meaning of the McFadden Act (Independent Bank
ers Association of New York State v.
Marine Midland Bank).
Court refused to "blindly accept" the position of the Comptroller
that an ATM is not a branch if it is not owned or rented by a na
It is clear from that decision, that the Court looked
at the substance of the bank/third party relationship rather than
its form and found that when customers deposited money in their bank
accounts through the ATM in question, the bank had received a de
posit within the meaning contemplated by the McFadden Act.
The Court was faced with a state law which specifically defin
ed ATMs as branches and it correctly applied state branching laws. This decision, in our opinion, should not dictate the outcome of
any similar suit in states which treat ATMs differently than bank
Exceptions in state laws for unmanned facilities are ex
ceptions to the branching laws and, therefore, equally applicable
to state and national banks.
The problem, however, would remain as to interstate shared
ATMs, since interstate branches are forbidden to national banks
under the McFadden Act.
S. 2851, the Financial Services Competi
tive Equity Act, passed by the Senate last week, solves this problem.
Section 1002, in part, amends the National Bank Act (12 U.S.C. 5155)
by adding an additional condition under which a national banking
association may retain or establish and operate a branch.
allows a national bank to have a branch in another state from that