The Supreme Court yesterday cleared the way for banks to expand the use of their networks of automated teller machines, letting stand regulations that for the first time could allow some machines to take deposits for banks in other states.
The court refused to review a lower court ruling that exempts certain kinds of automatic banking machines, known as ATMs, from state and federal regulation.
The action removed some legal uncertainty that industry officials feared could stunt the growth of ATM use.
It is expected to prompt large bank holding companies -- especially those in the Washington area -- to experiment with allowing customers to make deposits at machines across state lines.
In this area, customers at present can take money out of machines in the District, Maryland or Virginia, regardless of where the bank that has their accounts is located. But customers can only make deposits in the machines in the same jurisdiction as their bank.
"The implications of this case could lead to interstate deposit-taking through the automated teller systems," said Stephen Verdier, legislative counsel for the Independent Bankers Association. The trade group has challenged the expanded use of ATMs on the grounds that they could allow large banks to crowd out smaller, community-based banks by offering a larger array of services over a wider geographic area.
Banking officials said yesterday that taking deposits was believed to violate the federal law prohibiting banks from opening branches across state lines. The Supreme Court action, combined with statements from regulators, is expected to cause banks to reeaxmine this interpretation.
"It is definitely something we would consider doing now" as a result of the decision, said Page Cranford, the general counsel at Sovran Financial Corp., which owns banks in all three local jurisdictions. But he and other banking officials stressed they are awaiting a ruling from regulators clarifying how far they can go toward using the machines to take deposits across state lines.
ATM networks offer many of the services offered by bank offices, such as allowing customers to withdraw money or inquire about the balance of one of their accounts. Regulators have ruled that machines owned or rented by banks are the equivalent of bank branches and that they are subject to the federal law preventing branching across state lines, and thus cannot accept consumer deposits.
But the question in the current case was whether an ATM not owned or rented by a bank -- but by a third party -- is equivalent to a bank branch. The Comptroller of the Currency, one of the regulators of the country's banks, ruled that they were not branches in 1976.
That ruling was challenged in 1983, however, after Marine Midland Bank, a major national bank in Buffalo, entered into an agreement with a grocery store chain to let customers deposit and withdraw money at an ATM owned by the chain.
The Independent Bankers Association of New York State challenged this agreement, arguing that the machine was the equivalent of a Marine Midland branch. The group argued that establishment of such a branch violated a New York law restricting large banks from branching into small towns in the state.
A federal judge ruled that the grocery chain's machine was a branch and prohibited its use by the bank. That decision was overruled by a federal appeals court in New York. The bankers' trade group, representing the smaller institutions, asked the court to review that decision, but yesterday the high court refused to hear the case.
The court's ruling does not set a formal legal precedent and the complications of the specific case left bankers unsure about how far they could go toward full-fledged interstate banking by machine.
"This clears the way for the Comptroller of the Currency to rule in favor of it," said William C. Harris, president of the United Virginia Bank for the Greater Washington Region.
A spokeswoman for the comptrollers' office said that the court "did exactly the right thing" in refusing to hear the case and in essentially upholding the government's position.
If ATMs were deemed branches, the solicitor general had argued for the administration, it would "mean that telephones, mail boxes, electronic devices used to transfer funds or grocery store that cash checks would, for the first time, be considered branches" subject to federal regulation.
Because the case in question applied to machines not owned by banks, yesterday's court action would not affect all ATM machines. Some of the networks of machines in the Washington area are owned by the banks and apparently would not be covered by the case. But to avoid inconsistent treatment of machines that look alike to consumers, federal regulators could use the decision to allow expanded use of all machines.