"Wrongful Verb" Suit Tossed
More than a dozen "wrongful verb" class actions suits have been filed against ATM operators. The claim is that the ATM operators, who are required to post stickers on their ATM machines that warn of the surcharge for
non-customer cash withdrawals, are using the wrong verb. Plaintiff-grammarians insist that only the verb "will" complies—as in "we will charge you"—and that saying "may" charge violates the Electronic Funds Transfer Act. On this foundation, numerous class actions have been filed seeking an order requiring the banks to restore millions of dollars
in fees wrongfully levied. (These suits require a stiff measure of disbelief: Every ATM operator uses a click-through screen that notifies users that the bank "will" charge a fee and requires an affirmative
"Yes." This means, by definition, that every class member is someone who instructed the bank "Please charge me.")
On February 22, a federal district court in Boston rejected plaintiff’s theory: "[Plaintiff] Morrissey cites no case law, agency ruling, or
anything else of binding or persuasive authority which has so interpreted the statute and regulation. This is not surprising.
For Morrissey’s interpretation is ridiculous—his claim bordering on the frivolous." (Morrissey v. Webster Bank, N.A., Civ. No. 05-10984-WGY (D. Mass. Feb. 22, 2006).)
Practice Tip: On February 9, the Federal Reserve Board promulgated an amended regulation as part of Reg E that permits ATM operators to
use a sticker saying that an ATM fee "will" be charged or, alternatively, that a fee "may" be charged if there are circumstances
in which the operator does not charge fees. (See next article.)
For more information, please contact Will Stern at wstern@mofo.com.
New Regs For EFTs
On December 30, 2005, the Federal Reserve Board issued a Final Rule amending Regulation E, 12 C.F.R. pt. 205, and the Official Staff Interpretation of Reg E, which implements
the Electronic Funds Transfer Act, 15 U.S.C. § 1693 et seq., and governs electronic funds transfers ("EFTs"). The amendments address, among other things, the Regulation’s coverage of electronic check conversion services (i.e., the use of paper checks to initiate an electronic funds transfer).
Under the final rule, merchants and other payees that initiate electronic check conversion transactions must provide notice
to a consumer that the transaction will be processed as an EFT, and obtain the consumer’s authorization for the transaction.
Merchants and other payees are also required to make certain disclosures to consumers regarding electronic check conversion
transactions. The Final Rule additionally requires account-holding institutions to include certain information regarding electronic check
conversion transactions in their initial disclosures to consumers.
With respect to ATM disclosure requirements, the Final Rule permits ATM operators to state on ATM stickers that an ATM fee
"will" be charged or, alternatively, that a fee "may" be charged if there are circumstances in which the operator does not
charge fees. The Board notes that the amendment "does not represent a change in the Board’s interpretation of the rule’s requirements"
and is intended as a "clarification." In its commentary, the FRB Staff acknowledged the spate of "wrongful verb" suits. (See prior article.)
The revisions also address preauthorized transfers, error resolution, and other matters. The Final Rule became effective February 9, 2006. The mandatory compliance date is January 1, 2007.
For more information, please contact Rick Fischer (rfischer@mofo.com) or Oliver Ireland (oireland@mofo.com).
FRB Adopts National Standard For Demand Drafts
The FRB adopted an amendment to Regulation CC to establish federal standards in the treatment of "demand drafts," which the
new rules call "remotely created checks." These are deposited items that do not bear the signature of the maker but are authorized
by the payee. As with demand draft legislation in California, the amendments shift liability for an unauthorized, remotely
created check from the paying bank to the bank of deposit. The revised rules supersede state laws that are inconsistent.
For more information, please contact Rick Fischer at rfischer@mofo.com.
HMDA Exemption Threshold Raised
The FRB published its final rule under Regulation C raising the asset size exemption threshold to $35 million for depository
institutions that are required to report data under the Home Mortgage Disclosure Act. The previous exemption level was $34 million. Financial institutions with assets of $35 million or less as of December 31, 2005, will not be required to collect HMDA data
in 2006.
For more information, please contact Joe Gabai at jgabai@mofo.com.
Wal-Mart Bank
The FDIC plans to hold hearings in April in Washington, D.C. and Kansas City on Wal-Mart’s application for federal deposit insurance for its proposed Utah industrial loan company. Written testimony will be accepted until March 28.
