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Also, national banks could not fully participate in single-state networks (or use ATMs of multi-state networks located in its home state) if that state's branching laws are restrictive even if its banking regulators do not consider ATMs to be "branches". The decision could therefore magnify the effect of restrictive and anti-competitive provisions of state branching laws.
Effect on Shared Networks
National banks could be compelled to withdraw from, or reduce their participation in, some or all of the approximately 200 local, regional and national shared ATM networks in the United States. Networks spread start-up and operating costs too large for most banks to absorb alone among a number of participants, and their large transaction volumes and economies of scale make lower transaction costs possible. National bank withdrawal from those networks could seriously weaken the networks; and some might have to disband, which would obviously adversely affect the other participants in the network.
Effect on Consumers
A consumer whose bank participates in shared networks can conveniently conduct transactions with his or her bank at more places than the bank could provide alone - nearer home, nearer work, and in some cases across the country. The bank customer also enjoys lower per-transaction costs.
The rapid growth of shared networks demonstrates that their benefits are increasingly important to consumers. A national bank precluded from providing those beneifts would be at a serious disadvantage in attracting new customers and retaining old ones.
If national banks withdraw from shared networks, some of these networks may have to pass its increased costs on to consumers. Also, consumers will have fewer locations at which to transact business.
Strictly applied, the District Court's decision could also jeopardize the development of other kinds of consumer-oriented EFT services. Among these are point-of-sale systems, where consumers can use debit cards instead of cash or a check to pay merchants for goods or services, and home banking systems.
Effect on The National Banking System
National banks can justifiably perceive shared network services as an essential competitive tool. Some of them, to avoid the potential effects of the District Court decision (and perhaps to avoid other limitations thrift institutions and non-depository institutions do not suffer), might take the extreme step of converting to state banks or (as experts have recently recommended) to thrift institutions.
It would be at the least ironic if the District Court's static interpretation of a 1927 statute specifically intended to prvent the diminishment or destruction of the national banking system by allowing national banks to establish banking facilities on an equal footing with state banks were to have precisely that result.
S. 2898 can forestall the potential adverse effects of the District Court's decision on national banks' ability to compete on an equal basis with state banks, thrift institutions and non-depository institutions, prevent damage to shared networks and help assure that shared networks will continue to provide increased convenience and lower costs to consumers. Marine Midland Bank therefore strongly urges the passage of S. 2898.
September 13, 1984
Comments of Plus System, Inc. on S.2898,
SUMMARY OF COMMENTS
By these Comments, Plus System, Inc. ("PSI") endorses S.2898, The Banking Convenience Act of 1984, as a proper and necessary legislative remedy to an erroneous Federal District Court decision on the sharing of automated teller machines ("ATMs") by national banks. PSI opposes amendments to the bill, and alternative legislative solutions, that go beyond a narrow and precise codification of Comptroller of the Currency rules and interpretations on interstate ATM sharing by national banks.
Plus System, Inc. is a membership corporation composed exclusively of depository financial institutions, such as national banks, bank holding companies, savings banks, and savings and loan associations. PSI was formed for the sole purpose of developing and operating a nationwide, shared system of automated teller machines under the PLUS SYSTEM service mark. This ATM network permits the traveling consumer possessing an account at any PSI member financial institution to obtain access to that account at any other member institution's ATM. Since its incorporation in 1981, PSI has established the most extensive network of its kind in the country. Today, approximately 1,000 member financial institutions in 47 states share over 3,300 PLUS SYSTEM ATMs that offer 23 million cardholders electronic access to their depository accounts. The PLUS SYSTEM network has achieved unparalleled consumer acceptance: each month PSI processes over 250,000 transactions, most of which are cash withdrawals by consumers while traveling away from home.
PSI member financial institutions established the PLUS SYSTEM network at a cost of tens of millions of dollars and in reliance on long-standing federal court precedents and regulations that consistently have interpreted the branch banking restrictions of the McFadden Act to apply only to ATMs established, i.e., owned or rented by a particular bark. Now, the April 6, 1984 decision of the U.S. District Court for the Western District of New York, in Independent Bankers Association of New York State, Inc. vs. Marine Midland Bank, would overturn these previously undisputed ground rules based on an erroneous reading of the McFadden Act and a total misunderstanding of the electronic funds transfer environment in which the case arose. The District Court confused the vitally different practices of bank branching and ATM sharing, and in so doing it jeopardizes the very existence of the national PLUS SYSTEM network. Specifically, the District Court decision can be read as holding that a national bank engages in "branch banking" when its customers merely use an ATM owned by another institution. If such a broad reading were affirmed, the approximately 400 PSI members that are national banks would be precluded from participating in the PLUS SYSTEM network within the Second Circuit; and if the regulations of the Comptroller of the Currency were revised to accord with the District Court's decision, the same 400 banks would be barred from participating in any shared ATM system on an interstate basis.
Since the McFadden Act prohibits interstate branching by national banks, under the lower court's erroneous decision any ATM that is used by customers of a national bank and that is located in another state would become a "branch" of the card-issuing bank, and as such unlawful under the McFadden Act. This result would preclude national banks from participating in any multi-state shared system. Since national banks are essential to the PSI network, their inability to participate in it would eviscerate the national PLUS SYSTEM program. For all these reasons, PSI has petitioned, and has been granted leave, to participate in the Marine Midland case as amicus curiae.
Plus System, Inc. supports the adoption of S.2898, The Banking Convenience Act of 1984. Specifically, we believe that this bill narrowly and precisely reverses the effect of the Marine Midland decision. If adopted, the proposed legislation would merely codify the rulings and interpretations of the Comptroller of the Currency the very authority that permitted national banks to participate in shared ATM networks. In short, the bill would return financial institutions and consumers alike to the status quo ante, by legislatively endorsing a widespread practice that has been countenanced for more than ten years by the courts and the Executive Branch. As a corporation formed for the sole purpose of operating a nationwide shared ATM system, PSI does not believe it prudent to confuse the issue further by introducing extraneous amendments that do more than simply codify the Comptroller's regulations and interpretations on ATM sharing. This bill and this issue, in short, are not appropriate vehicles to address interstate deposit taking or enlarged state authority over national banks, both of which are beyond the scope of the narrow issue addressed by the Marine Midland court and this proposed legislation. The PLUS SYSTEM Shared Network
PSI is owned and controlled by 34 "proprietary" members, all of which are depository financial institutions or their holding companies that have exclusive ownership and voting rights in the corporation; 20 of these proprietary members are national banks. (A list of these members is attached as Exhibit A to these comments.) In addition, approximately 960 other financial institutions, including national banks, bank holding companies, savings banks, savings and loan associations, credit unions, and industrial banks, are "sponsored" members of PSI and as such participate in its ATM network but do not have proprietary or voting rights in the corporation. Of the 960 sponsored members, 374 are national banks. PSI's approximately 1,000 members are dispersed throughout all but three states, and collectively they have assets in excess of $450 billion.
Consumers who bank at PSI member financial institutions enjoy an unparalled benefit: they can obtain electronic access to their account at any other PSI member institution's ATM, whether that machine is located around the block or 3,000 miles away. The customer may withdraw cash from a demand deposit or savings
account; transfer funds between a demand deposit and savings
It is important to note that these ATM functions such as cash dispensing, balance inquiries, and transfers between accounts reflect a newer, more efficient electronic version of an older manual industry custom. What is new is the way these functions are provided, not the bare fact that they are being provided at all.
For at least 15 years before the advent of shared ATM systems the same bank customers using the same banking card* (either a credit card or, later, the bank's own debit card) could obtain a cash advance by presenting the card in person to an out-of-state bank that was a member of the same credit card association (such as Visa or MasterCard) as the issuing bank. The customer also could obtain a cash advance from any other out-of-state bank that had agreed contractually with the card issuing bank to provide this service to the issuer's customers. In addition to arranging for cash advances on credit cards, banks routinely arranged (and still do today) for their customers to cash their personal checks at out-of-state banks.
These interbank arrangements are known as "agent" relationships, and along with the more comprehensive "correspondent" services (such as check clearing, loan participations, and electronic data processing) are well known, common, and long ago accepted as necessary components of the banking industry. These practices have never been deemed "branch banking" by national banks.**
Sharing of ATMs by national banks or other types of financial institutions is nothing more than the electronic equivalent of these well-known agent and correspondent-type banking relationships. In this limited sense, the traditional manned facilities and the modern electronic ATM serve the same narrow function: they permit
Of course, since this was before the introduction of consumer electronic services, there was no personal identification number associated with the card. Such a number, a "PIN," must be used by the customer to gain access to an ATM.
See United States v. Citizens and Southern National Bank, 422 U.S. 86, 115 (1975).