The introduction last week of bank automatic teller machines in 24 Giant Food supermarkets goes to the heart of a closely watched case that is pending in the U.S. Court of Appeals. The issue in that case -- establishment and operation of ATMs by third parties -- is deemed so critical, in fact, that some members of Congress are seeking a legislative remedy.
As reported here several weeks ago, a U.S. District Court in New York ruled that even though a supermarket installed an ATM for the convenience of its customers, the machine is a branch if a bank takes deposits, grants withdrawals and issues credit card loan advances at the ATM.
The ruling stemmed from a complaint filed a year ago this month by the Independent Bankers Association of New York State Inc. (IBANYS) and the Canandaigua National Bank and Trust Co. (CNB), charging Marine Midland Bank with operating a branch in a Wegman's Food Markets Inc. store in Canandaigua, N.Y.
In a brief filed in the 2nd Circuit Court of Appeals, the plaintiffs argued that Marine was the "anchor participant" in Wegman's ATM network and that Marine "figured prominently" in Wegman's promotion of the network. Moreover, said the plaintiffs, Wegman's ownership and operation of the ATM violated New York banking law because the supermarket chain receives deposits at the machine and transmits money from it to Marine and other banks.
If upheld on appeal, the lower court ruling declaring the ATM a bank branch could have widespread significance for banks that participate in shared-ATM networks, particularly those spanning state borders and having machines owned by third parties.
In a joint venture formed with Suburban Bank of Bethesda in February, Giant will operate a shared-ATM system enabling Internet (a regional ATM network of financial institutions formed by a merger of the MOST and Network Exchange ATM systems) cardholders to perform limited banking operations in the chain's supermarkets.
Eventually, most of Giant's 132 supermarkets will have ATMs equipped with braille instructions to help blind customers.
The Suburban-Giant announcement comes in the wake of the introduction of a bill in the Senate aimed at preserving the existing structure of shared-ATM networks.
The circuit court ruling could inconvenience millions of consumers by "severely disrupting" existing shared-ATM networks, raise the cost of financial services and "imperil" hundreds of millions of dollars already invested in the systems, declared Sen. Paul S. Trible Jr. (R-Va.).
As cosponsor of a bill he says will preserve and foster shared-ATM networks, Trible said Congress needs to "ride the wave of electronic banking" and "to get on the side of financial innovation." In urging passage of the bill, Trible challenged colleagues to help financial institutions and consumers "enter the 21st century."
The bill's cosponsor, Sen. Gordon J. Humphrey (R-N.H.), said it would codify existing interpretations by the U.S. Comptroller of the Currency, who has ruled that an ATM is not a branch if it isn't owned or rented by a bank.
"If the circuit court is correct," said Trible, "and a shared ATM is a branch, then national banks could not allow their customers to use out-of-state ATMs because federal law does not allow out-of-state branches."
In effect, Trible added, national banks would be unable to participate in existing national or regional shared-ATM networks.
"The damage would not be confined to national banks and their customers," Trible warned. He added that state banks that are members of the Federal Reserve System, and their customers, could also be harmed by the circuit court's ruling.
Trible believes his bill, the Banking Convenience Act of 1984, would "head off these disasters."
The bill would codify the interpretations and rulings of the comptroller, saying, in effect, that under federal law a shared ATM used by a national bank's customers -- but not owned or rented by that bank -- is not a branch of that institution. The bill further states that the location of shared ATMs is not restricted by state branching laws.
That goes to the heart of arguments presented by the plaintiffs in the New York case, who maintained that Marine didn't need to "own or rent" the ATM in order to "establish it." A branch bank "may be established and operated by Marine without Marine either owning or renting the ATM," the plaintiffs argued.
After reading an earlier Capital Commerce column on the case, an attorney for the New York plaintiffs suggested that after reading his clients' brief, I would find the legal arguments in favor of their position "persuasive."
After reading the plaintiffs' arguments at length, I'm still not persuaded. The plaintiffs themselves note that "for each transaction at the ATM by one of its customers, Marine paid Wegman's transaction fee in consideration for its use of the ATM."
Forget the legal and semantic exercises in which words such as "establish" and "own" seem so pivotal. That's just cannon fodder in a case that has its origin in the following excerpt from the plaintiffs' brief: "It is not difficult to envision that 'money-center' federal banks based anywhere in the country could utilize shared ATMs as 'mere receiving stations' to siphon off the small-community deposits, which are the life blood of CNB and other IBANYS members."