Metrobank v. Foster, CIV.4-01-CV-10226.

• Decision Date: 06 March 2002
• Docket Number: No. CIV.4-01-CV-10226.,CIV.4-01-CV-10226.
• Citation: 193 F.Supp.2d 1156
• Parties: METROBANK, National Association, Wells Fargo Bank Iowa, N.A., Bank of America, N.A., Firstar Bank, N.A., and U.S. Bank, N.A., Plaintiffs, v. Holmes FOSTER, in his official capacity as Superintendent of Banking and Administrator of Electronic Transfer of Funds, Iowa Division of Banking, Iowa Department of Commerce, Defendant.
• Court: U.S. District Court — Southern District of Iowa

193 F.Supp.2d 1156

METROBANK, National Association, Wells Fargo Bank Iowa, N.A., Bank of America, N.A., Firstar Bank, N.A., and U.S. Bank, N.A., Plaintiffs, v. Holmes FOSTER, in his official capacity as Superintendent of Banking and Administrator of Electronic Transfer of Funds, Iowa Division of Banking, Iowa Department of Commerce, Defendant.

No. CIV.4-01-CV-10226.

United States District Court, S.D. Iowa, Central Division.

March 6, 2002.

Jeffrey E. Lamson, Mark McCormick, Belin, Lamson, McCormick, Zumback & Flynn, PC, Des Moines, IA, E. Edward Bruce, Keith A. Noreika, Covington & Burling, Washington, DC, for plaintiffs.

Donald G. Senneff, Attorney General of Iowa, Dennis W. Johnson, Iowa Attorney General, Prosecutions Division, Des Moines, IA, for defendant.

ORDER

LONGSTAFF, Chief Judge.

Plaintiffs filed a motion for summary judgment and permanent injunction on May 10, 2001. An amicus curiae brief in support of plaintiffs' position was filed by the Office for the Comptroller of Currency ("OCC") on May 22, 2001. Defendant filed his resistance to plaintiff's motion, and a cross-motion for summary judgment, on October 25, 2001.¹ Plaintiffs then filed a resistance to defendant's motion and reply in support of their own motion for summary judgment on November 6, 2001. Defendant filed a reply brief in support of his cross-motion for summary judgment on November 14, 2001. The Court held a hearing on January 25, 2002. The matter is fully submitted.

I. BACKGROUND

Plaintiffs are banking associations organized and existing under the National Bank Act, 12 U.S.C. § 21 et seq. Plaintiffs will be collectively referred to as "the National Banks" in this Order. Defendant is Holmes Foster, in his official capacity as Superintendent of Banking and Administrator of Electronic Transfer of Funds, Iowa Division of Banking, Iowa Department of Commerce. Defendant will be referred to as "the Administrator" in this Order. This Order will address whether the National Banks may charge fees to individuals who use their automated teller machines ("ATMs") when those individuals do not maintain an account at the bank which owns and operates the ATM.

The National Banks own and operate ATMs at numerous locations in the state of Iowa. The National Banks purchase, install, protect, supply and maintain the machines that dispense cash and perform other banking operations. The National Banks also incur rental costs for machines which are not on their own premises.

The National Banks desire to charge a fee to individuals who use an ATM if that person does not maintain an account at the bank which owns and operates that ATM. Essentially, the National Banks argue that they provide a machine's service at a cost, and that they should be able to charge those using the service. The National Banks will post a "fee notice" on the screen to notify ATM users during their transaction that they will be charged a fee, in accord with federal law and regulations. The ATM user will then have a chance to cancel the transaction prior to incurring a fee.

The OCC is the federal regulatory agency charged with administration of the National Bank Act ("NBA"), 12 U.S.C. section 1—216d. The OCC has made clear that the National Banks should be able to charge ATM fees. See 12 C.F.R. section 7.4002(a) and (b). The OCC also states the amount of the fees should be a business decision to be made by each bank. Id. However, Iowa law prohibits the National Banks from charging fees to non-accountholders who use their ATMs. See IOWA CODE §§ 527.4, 527.5, and IOWA ADMINISTRATIVE CODE § 187-10.4(527)(3)(a)(3).²

The Administrator asserts that the National Banks are already compensated for providing ATM services to non-accountholders. The Administrator has provided the affidavit of Richard Jenkins, vice president and corporate counsel for Shazam, Inc. ("Shazam"). See Appendix in Support of Defendant's Motion for Summary Judgment, at 1-4. Shazam serves as the central routing unit for ATMs in the state of Iowa pursuant to Iowa law. A group called the "Shazam Ad Hoc Pricing Committee" meets to determine the amount of "interchange fees" that should be paid to financial institutions when non-accountholders use their ATMs. Id. at ¶ 4. In September 1999, the committee met and "decided that a nine (9) percent return" on costs would constitute the interchange fee. Id. Plaintiffs in this case, the National Banks, received a total of more than 3.5 million dollars in interchange fees during the period of May 2000 through April 2001. Id. at ¶ 5.³

In the complaint, the National Banks allege they are entitled to relief from Iowa's ATM fee prohibition. The National Banks request a declaratory judgment pursuant to 28 U.S.C. sections 2201-2202, and assert they are entitled to summary judgment as Iowa law is preempted by the National Bank Act ("NBA"). In his motion for summary judgment, the Administrator asserts Iowa's ATM fee prohibition is permissible under a different federal law, the Electronic Funds Transfer Act ("EFTA"), 15 U.S.C. section 1693 et seq.; that Iowa's ATM fee prohibition is not preempted by the NBA; and that the position of the OCC is not entitled to deference by this Court.

II. APPLICABLE LAW & DISCUSSION

A. Standard of Review

Summary judgment is properly granted when the record, viewed in the light most favorable to the nonmoving party, shows that there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); Walsh v. United States, 31 F.3d 696, 698 (8th Cir.1994). The moving party must establish its right to judgment with such clarity that there is no room for controversy. Jewson v. Mayo Clinic, 691 F.2d 405, 408 (8th Cir.1982). "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (emphasis added). An issue is "genuine," if the evidence is sufficient to persuade a reasonable jury to return a verdict for the nonmoving party. Id. at 248, 106 S.Ct. 2505. "As to materiality, the substantive law will identify which facts are material.... Factual disputes that are irrelevant or unnecessary will not be counted." Id.

B. Whether EFTA or NBA is the Applicable Federal Law

The Administrator asserts the EFTA, and not the NBA, is the federal statute Congress intended to control ATM use. Specifically, the Administrator alleges the EFTA gives states the right to regulate electronic fund transfers, and specifically to grant consumers greater protections than those given under the EFTA itself. See 15 U.S.C. § 1693q. The Administrator asserts the ATM fee prohibition in Iowa Code Chapter 527 is allowed under the EFTA as it grants greater protection to consumers, so that ATMs are available on a nondiscriminatory basis. Further, Congress enacted the ATM Fee Reform Act in 1999. See 15 U.S.C. § 1693b(d)(3). This law addresses ATM fees and requires that such fees be disclosed at the time of the transaction, and sets up the type of notice that must be provided to the ATM user. Id.

When similar issues arose in a previous case, this Court agreed with the Administrator. See Bank One, Utah, National Assoc. v. Guttau, 1998 WL 1796176 (S.D.Iowa 1998). Specifically, this Court found the EFTA and not the NBA addressed bank charges for ATMs because the EFTA contains provisions regarding ATM fees. This Court concluded in that Order that Iowa's ATM fee prohibition was not preempted by the EFTA. The Court stated that the EFTA deferred to state law, and that Iowa's fee prohibition was reasonable in light of the interchange fee allowed under Iowa law.

The Eighth Circuit did not specifically address the above-noted fee prohibition ruling when it reversed this Court's decision, see Bank One v. Guttau, 190 F.3d 844 (8th Cir.1999), but it did clearly indicate that the NBA, and not the EFTA, governs ATMs. The Eighth Circuit addressed the portion of Iowa law that prohibited a bank from operating an ATM in Iowa if it did not have an in-state office and approval from the Administrator. Id. at 847. The Eighth Circuit determined that nothing in the EFTA "grants the states any additional authority to regulate national banks," and that section 1693q does nothing to save state regulation of ATMs from preemption by other federal law. Id. at 850. The majority of the panel then went on to state, "Congress has made clear in the NBA its intent that ATMs are not to be subject to state regulation." Id. Ultimately the Eighth Circuit found that the state regulation was preempted by the NBA, and that the plaintiff was entitled to a permanent injunction enjoining enforcement of the Iowa law that required banks to have an in-state office and approval from the Administrator before operating an ATM. Id. at 851.

This Court finds that Congressional adoption of the ATM Fee Reform Act, see 15 U.S.C. § 1693b(d)(3), does nothing to alter the governing statements of law found in Bank One. Congress decided to provide consumers with extra protections, and now banks that charge ATM fees have to provide notice to machine users during the transaction pursuant to section 1693b(d)(3). However, Congress did not expressly change the governing law found in Bank One: that the NBA and not the EFTA is the relevant federal legislation, and ATMs are not subject to state regulation.

C. Whether Iowa ATM Fee Prohibition is Preempted

As previously stated in this Order, Iowa law does not allow national banks to charge ATM fees to non-accountholders. See IOWA CODE §§ 527.4, 527.5, and IOWA ADMINISTRATIVE CODE § 187-10.4(527)(3)(a)(3).

The National Banking Act gave nationally chartered banks the ability to exercise "all such incidental powers as shall be necessary to carry on the business of banking." See 12 U.S.C. § 24 (Seventh...