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the McFadden Act and the Douglas Amendment to the Bank Holding Com

pany Act.

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

these cases,

Colorado ex rel. State Banking Board v.

First National

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.

39-248 0484-23

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

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Today there are as many as 200 shared re-
gional networks of ATMs serving virtually
every state and region of the United
States. The 16,000 ATMs connected to
shared networks process approximately
60,000,000 transactions per month, which
is about one-third the total ATM trans-
action volume. Nearly 65 percent of the
financial institutions with ATMs belong
to shared ATM networks, and they have
collectively issued over 50 million
ATM access cards with shared network
logos, representing 67 percent of all
debit cards issued in the United States.
Moreover, membership in shared ATM net-
works is common among both large and
small, state- and nationally-chartered
institutions. In fact, a recent survey
indicates that almost 40 percent of the
institutions that are now planning to
begin offering ATM services for the first
time plan to do so through membership in
shared systems. (footnotes omitted)

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'


respective borders.

That survey found: *

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23 state statutes cover ATM deployment by national
banks as well as state-chartered institutions.

37 states require or expressly permit ATM sharing,
with 27 states requiring such sharing in all or
some cases.

8 states of the 42 with statutes explicitly dealing
with ATMs declare those ATMs to be "bank branches",
34 state statutes regard ATMs as other than bank
branches by explicit statement to the contrary or
by creation of special categories, e.g., "Automated
Teller Machine Branch Offices", or are silent on
the issue.

Nearly all states with state statutes have a
specific list of appropriate ATM functions, which
tend to center around service of existing account
and debt relationships or activating prearranged
lines of credit.

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

banks operate.

*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

tional bank.

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

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