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Lawsuit targets CNB over notices for ATM fees

A Pennsylvania law firm specializing in class-action complaints has targeted the Canandaigua National Bank & Trust Co. in a suit seeking refunds for ATM customers who used machines that allegedly failed to properly post the fees charged.

The suit, which seeks class-action certification, was filed Oct. 13 in U.S. District Court in Rochester by the Carlson Lynch Ltd. law firm of Sewickley, Pa. The complaint,

which alleges that CNB violated the federal Electronic Funds Transfer Act by failing to post fee notices properly, is one of roughly a dozen actions filed this year by the Pennsylvania firm against banks and credit unions, said Carlson Lynch partner Bruce Carlson.

The federal lawsuits, worded almost identically, argue that ATM owners must post clearly visible notices outside of machines and that on-screen fee notifications do not satisfy the requirements of the EFTA.

None of the cases has been certified as a class action. But several have been successful, Carlson said. Some of the financial institutions his firm has targeted-a mix of large and small banks and credit unions in several states and a Las Vegas-based ATM company with machines in casinos-have agreed to out-of-court settlements, Carlson said.

He declined to disclose the settlement amounts, which have not yet been made public. But at least one defendant has agreed to pay the $500,000 statutory maximum allowed in such cases, he said.

"Because the law is so clear, banks are motivated to settle early in the process," Carlson said.

A settlement with CNB might not be a slam dunk for Carlson, however, said CNB president and CEO George Hamlin IV. The bank has turned the complaint over to its lawyers. Hamlin is awaiting their recommendation and has not decided whether to engage in a possibly expensive court battle.

But for the bank president, an attorney himself, the case is not cut-and-dried. The law is less settled than Carlson claims, Hamlin said. Some decisions have favored class-action claimants, but others have not. And, Hamlin said, CNB might be able to make a case for not posting external notices.

Because users must read and acknowledge fee notices on the screens of CNB ATMs before they can complete transactions, those on-screen notices are a sufficient warning and even superior to a fee list posted outside a machine, which simply fades into the background for most consumers, Hamlin said.

On Carlson’s home turf in the Pittsburgh area, where his firm filed cases against a credit union and a state-chartered savings bank in May, a judge dismissed the case against the Sewickley Savings Bank last week. Carlson said he intends to appeal that decision and believes the ruling was based on an erroneous interpretation of regulations.

If it withstands an appeal, the adverse ruling still would apply only to state-chartered banks and would not hamper his ability to sue nationally chartered banks, non-bank ATM operators or federally chartered credit unions, the attorney said.

Contentious issue

ATM fees have been a bone of contention for years. Banking and credit union trade groups claim fees are needed to offset the cost of processing transactions and communicating among institutions.

Consumer groups have lobbied for the elimination of ATM fees, arguing that such charges are not justified because automated transactions cost less than transactions handled by tellers. In the late 1990s, several states and cities passed laws banning ATM fees in their jurisdictions, but such laws were voided by a federal judge’s 1999 ruling that local bans could not be imposed on banks with national charters.

The current fee rules under EFTA attempt to split the difference, allowing banks and credit unions to charge consumers for using ATMs but requiring the financial institutions to warn customers when fees apply. Scores of cases involving ATM fee notices have gone through federal courts since 1999.

An early round of such suits concentrated on the language of notices. Plaintiffs’ lawyers maintained that institutions violated EFTA provisions if they warned ATM users that they may incur fees rather than stating that they will be charged fees.

In a pending class action involving that dispute about verb choice, filed against JP Morgan Chase Bank N.A. in a Wisconsin federal court, the bank agreed in 2008 to pay up to $2.1 million to settle the case.

The settlement came after Chase had won a lower-court decision disallowing the claim as a class action. The bank settled when the plaintiffs’ attorneys appealed and filed a new suit restating the class-action claim. Consumers still can join the action, so it is not clear what the bank’s final payout will be.

In another case, a panel of the 6th U.S. Circuit Court of Appeals disallowed a claim against Key Bank N.A., ruling last year that the bank’s use of the word "may" in its notice did not make the notice deficient.

New round of actions

The CNB suit is part of a later round of class-action claims that do not dispute the language of fee notices but take issue with where and how the warnings about ATM fees are communicated. A small minority of ATM owners fail to post external warnings, leaving themselves open to claims such as the CNB suit, Carlson said.

In the CNB complaint, plaintiff Shawn Howard-identified in court papers as a Farmington resident who does not have a CNB account-describes cash withdrawals he made in August from CNB ATMs at F.F. Thompson Hospital in Canandaigua and in a Canandaigua food store.

In each instance, the complaint states, the bank, acting as an ATM operator, charged Howard a $2 fee. The suit seeks recovery of the fees for Howard "and others similarly situated."

Current rules limit awards in such cases to actual damages, permit claims for a period of no more than 12 months and cap total damages at $500,000 or 1 percent of the defendant’s net assets. Awards for individual claimants can be as low as $10 or as much $1,000.

The amount of per-claimant damages allowed in a given case can be set by a judge or agreed on between parties in a settlement. How much each claimant collects depends on how many plaintiffs participate in the suit. After attorney fees and administrative costs are deducted, awards or settlement amounts are split evenly among the plaintiffs.

Defending CNB against the Carlson Lynch suit likely would be expensive, especially if the suit won class-action certification, Hamlin conceded.

"It costs $50,000 just to get in front of a judge," he said.

The numerous motions and depositions and extensive discovery requirements of a class action would translate to many billable hours for lawyers. But money and the bank’s chance of prevailing would not be the only factors on which Hamlin would decide whether to fight the suit or settle.

"It’s a matter of principle," he said.

On one hand, each dollar that CNB spent to fight the class action would mean $13 to $14 less that the bank could advance to local businesses and homeowners in loans, Hamlin said. On the other hand, he believes, class-action lawsuits such as this end up costing consumers more than the relatively few dollars that go to claimants.

For each institution facing a decision whether to fight or settle, avoiding an expensive trial might seem to be in its shareholders and customers’ best interests, Hamlin said. But the sum of those decisions might add up to a wrong move. Taking a stand against such lawsuits might benefit consumers more in the long run, Hamlin said.

If CNB does opt for a court fight, it would not be the first time the bank had gone the distance in an ATM dispute, Hamlin said. In the 1980s, CNB challenged the right of Wegmans Food Markets Inc. to put ATMs in its Canandaigua store. The bank won a favorable decision from U.S. District Judge Michael Telesca but saw the ruling reversed on appeal. CNB sought to take the case to the U.S. Supreme Court, Hamlin said, but the high court declined to hear it.

Hamlin said he pursued the case against Wegmans even though he considered the supermarket chain’s CEO at the time, Robert Wegman, to be a friend and mentor. He harbors fewer warm feelings for Carlson.

10/23/09 (c) 2009 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303.


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