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the customer of one bank to obtain from another bank cash on a line of credit or from a depository account. In both cases, the brickand-mortar banking facility and the ATM are established by one bank and then shared with others. Until the remarkable Marine Midland decision from the Western District of New York, it had long been held, based on Indep. Banker's Assoc. of America v. Smith, 534 F.2d 921, 948 (D.C. Cir.), cert. denied 429 U.S. 862 (1976) and Interpretive Rulings of the Comptroller of the Currency, that a national bank was free to operate in this way; that is, to share with other banks ATMs it had established (i.e. owned or rented) without causing those other banks to be engaged in branch banking.
Each ATM in the PLUS SYSTEM network is established and controlled in a manner consistent with the Smith decision, i.e. by only one depository institution and in a manner that conforms to relevant federal and state laws and regulations. Neither PSI nor any member has any proprietary interest in the ATMS established and operated by any other PSI member. Rather, ATMs are established by one member depository institution in accordance with state and federal branching requirements and then are shared with other PSI members. Each ATM is generally identified only with the name of the bank that deployed it; and if the ATM is linked to the PLUS SYSTEM network, it will bear a five inch square decal depicting the PLUS SYSTEM service mark.
Many PSI member institutions also share their ATMs on a local basis with other financial institutions that are not members of PSI. Indeed, ATM sharing actually is required by state compulsory sharing laws.* These "local" or "regional" shared networks have been operating for many years, and in fact were harbingers of national shared ATM systems such as the one operated by PSI. Indeed, the PLUS SYSTEM service mark was developed by Rocky Mountain BankCard System, a division of The Colorado National Bank of Denver, for use in a multi-state regional network in the western United States. (Rocky Mountain BankCard System itself was established in 1967.)
Since ATM sharing began more than ten years ago, it has become widespread eloquent testimony to the consumer convenience it provides at a cost below that of the earlier manual system. For example, as of August 1983, over 16,000 of the total of 40,000 ATMs in the country (i.e. 40%) were shared, and there were approximately 200 local or regional shared networks.** Approximately 50 million ATM access cards (almost one-half of
* See generally, Penney & Baker, The Law Of Electronic Fund Transfer Systems, Par. 22.02 (1981). Approximately 25 states have such compulsory sharing statutes, See id., 1983 Cum. Supp. Par. 22.02, at S22-21.
Felgran, "Shared ATM Networks: Market Structure and Public
all those in the country) carried the trademarks of, and were useable in shared networks; and more than one-half of the commercial banks in the country belonged to shared ATM networks. The proliferation of shared ATM networks has been accompanied by a growing consumer acceptance of ATMS: 40% of bank consumers use ATMS in conducting their banking business.*
PSI member institutions view -- and have extensively advertised the national PLUS SYSTEM network as an important valueadded convenience to the traveling consumer. Consumers have responded accordingly: the PSI network now processes over 250,000 transactions per month from its 23 million cardholders. All these are transactions conducted by a customer of an issuing FSI member bank at an ATM established and operated by another PSI member bank. Four-fifths of all transactions through the network are cash withdrawals or cash advances. Of course, most transactions at ATMs linked to the PLUS SYSTEM network are still conducted by the ATM owner's customers or by customers of other non-PSI member banks that share the ATMs on a local or regional basis.
In general, a transaction between any two of the 1,000 PSI members (i.e. a transaction by a customer of PSI member A at an ATM established and operated by PSI member B) will be electronically routed between the two financial institutions via a central computer link, the PSI "Switch." The card issuing member bank pays a "switch fee" of $0.25 to PSI for each of its customer's transactions routed through the Switch. In addition, for cash withdrawals, the issuing member bank pays an "interchange fee" of $0.50 to the PSI member bank that operates the ATM being used by the issuer's customer. (The payment to the ATM owner is lower for balance inquiries.) The switch fee is intended to meet PSI's operating costs, but in fact it only partially compensates PSI for the development and operational costs associated with the nationwide PSI system.
B. The Effect of the Adoption of S.2898 on Plus System, Inc.
The adoption of S. 2898 in the form originally proposed would ensure the continued operation and growth of the PLUS SYSTEM network, the vital participation of the 400 national banks that are members of PS1, and the continued delivery of efficient, valuable banking services to the 23 million PLUS SYSTEM cardholders who increasingly expect to have electronic access to their funds wherever they travel throughout the United States.
Stated differently, the failure to adopt S.2898, together with the aberrant decision of the U.S. District Court in the Marine Midland case, could have a devasting effect on the PLUS
SYSTEM network, all its 1,000 member financial institutions, and the millions of consumers who rely upon its shared ATM network. These effects would be the direct result of a conclusive judicial decision or Comptroller regulation that the mere use by a customer of a national bank of an ATM owned by another bank constitutes "branch banking" by the card-issuing national bank. This would prevent the approximately 400 PSI members that are national banks from participating in the national PLUS SYSTEM network or, indeed, in any shared ATM system on an interstate basis. Such a result would be a retrogression, an attempt to retard the growth of an efficient electronic financial delivery system, and an endorsement of limited, costly, and outdated consumer banking services. short, the extension of the Marine Midland principle would have widespread implications:
First, the consumers holding cards issued by PSI's national bank members could not use the national PLUS SYSTEM network. would deprive these consumers of the speed, convenience, and efficiency of national electronic access to their funds, and it would force them to rely instead on the decades-old manual practice of funds access, assuming this too were not also "branch banking."*
Second, the potential loss to the PLUS SYSTEM network of 400 national bank members, some of whom (such as Bank of America and Chase Manhattan) are PSI's largest members, could cause other types of financial institutions, such as savings banks or savings and loans, to withdraw from the network entirely. without national banks, the entire network may not be cost effective or commercially attractive to its members.
Third, the PSI shared system has important economies of scale that would be seriously impaired. In the PSI network, the larger the number of transactions through the FSI switch the lower the cost per transaction. Obviously, if national banks and their customers could not use the network, tens and perhaps hundreds of thousands of transactions would be lost, causing unit costs to soar. If the costs become prohibitive, the system and its attendant consumer benefits would have to be abandoned.
Fourth, the competitive balance between national and state banks could be seriously undermined because national banks could not share terminals across state lines, yet there would be no similar restriction on state banks. Furthermore, since federal savings and loan associations and credit unions are expressly
Of course, agent and correspondent banking practices would
permitted to deploy terminals across state lines, * national banks would be singularly barred from offering their customers a valuable service available from their competitors.
Fifth, Plus System, Inc. and its proprietary members, as well as to a lesser extent its sponsored members, would risk the loss of tens of millions of dollars they have invested in the development, operation, and promotion of a sophisticated nationwide consumer electronic funds transfer system. This system has been built in reliance on long-standing federal court precedents, such as Independent Banker's Assoc. of America v. Smith, 534 F.2d 921 (D.C. Cir.) cert. denied, 429 U.S. 862 (1976), as well as regulations of the Comptroller of the Currency. The District Court in Marine Midland has jeopardized PSI members' investment by disregarding these precedents and by confusing branching with the factually and legally distinct practice of sharing.
Sixth, the considerable uncertainty caused by the Marine Midland decision may well discourage PSI member investment in enhanced shared ATM technology. With the present investment now newly at risk, PSI and its member institutions must procede with great care in making further investments pending clarification of the scope and breadth of the Marine Midland decision. This would be a tragic result for the traveling consumer because shared ATM systems such as the PLUS SYSTEM network have proved that they can provide an efficient, reliable, low cost, accurate, and convenient means to obtain electronic access to the consumer's account. Without corrective legislation, the consumer could lose these proven benefits, and no doubt future enhancements and innovative banking services would be discouraged.
Seventh, smaller financial institutions, who now enjoy the same benefits of the national PLUS SYSTEM program as their much larger competitors, would be deprived of a vital competitive "equalizer" consumer access to accounts at any one of 3,300 ATMS nationwide. The elimination of interstate ATM sharing would be more harmful to these smaller banks than to larger ones. C. The Effect of the Adoption of Amendments Proposed by the Conference of State Bank Supervisors
Finally, PSI strongly opposes the amendments proposed by the Conference of State Bank Supervisors ("CSBS"). Far from merely codifying the Comptroller's rules on sharing by national banks, the CSBS amendment would constitute Congressional consent to new authority by the states over the operations of national banks. Specifically, the CSBS proposal to exercise state authority over the "location, ownership, operation and permissible functions"
* 12 USC Sec. 1464(b)(1)(F), 12 C.F.R. Sec. 545.4-2(c) (1983)
of national bank ATMs would give more regulatory authority to the states than they currently have. What is the basis for new State authority over the functions, operations, and ownership of a national bank's ATMs? CSBS apparently asks for competitive uniformity not competitive equality between state and national banks on their terms alone and without further Congressional oversight. of course, federal savings and loan associations and credit unions would not be subject to such state authority. The simple question of legislative endorsement of ATM sharing on precise terms previously approved by the courts and the Comptroller is hardly the appropriate occasion to address this complex issue.
Moreover, the CSBS Amendments would introduce new legal uncertainty on interstate sharing of ATMs. Several states (including Florida, Massachusetts, and Connecticut) have in the past tried to limit such sharing by statute, but have abandoned the effort. Under the Commerce Clause of the Constitution, a state may not bar interstate financial activities unless Congress expressly consents to such a restraint "by confering upon the states an ability to restrict the flow of interstate commerce that they would not otherwise enjoy." Lewis v. B.T. Investment Managers, 447 U.S. 27, 44 (1980). As of this time Congress has not consented to such state restraints on interstate sharing of ATMs. The CSBS Amendments, giving states control over "operation" of ATMs, might be construed as congressional consent to state prohibitions on interstate sharing. We think that such a reading would be at odds with the Supreme Court's prior Commerce Clause decisions, but the question is not clear beyound doubt. Hence, interstate ATM sharing systems (such as PSI) would at least face a period of uncertainty while the courts resolved the issue.
Furthermore, by going beyond a mere codification of the Comptroller's sharing rules, the CSBS amendments introduce other ambiguities and business uncertainties that will spark litigation and discourage ATM sharing by national banks. For example, CSBS does not merely adopt the branch standard previously articulated. Instead, it provides that an automated device is only "presumed" not to be established by a national bank if it pays transaction fees. Why "presumed?" This raises an issue bound to be litigated.
In short, CSBS raises the entirely new issue of greater state authority over the activities of national banks. This is beyond the scope of the problem to be resolved by S.2898 and as such it should be rejected.
In conclusion, Plus System, Inc. endorses S.2898 for the simple reason that it assures PLUS SYSTEM financial institutions that the legal ground rules for ATM sharing continue to be precisely the same as they were before the aberrant and erroneous April 6, 1984 Marine Midland decision. With this assurance, consumers will continue to enjoy the substantial benefits of widespread electronic access to their depository accounts.