The National Bank Act's Federal Preemption on State Electronic Funds Transfer Acts

Article excerpt

!. INTRODUCTION

"[T]he financial services industry is in the midst of a competitive and technological revolution ..... One of the biggest technological revolutions in the banking industry has, by far, been the evolution of Automated Teller Machines (ATMs).2 Since their introduction approximately thirty years ago,3 the use of ATMs has proliferated.4 In 1997, the United States' payments systems (of which ATMs are a group) were worth approximately $22 trillion, with experts estimating that the systems comprised nearly 650 billion payments.5 For the majority of consumers in the United States, ATMs have become the primary means of transacting business with their banks.6 Many consumers, the author included, rarely step foot inside the front doors of their banks to make a transaction. Instead, when they need to get cash, make a deposit, or check their balance, they go to the ATM, insert their access card,7 punch in their personal identification number (PIN), and their requests are attended to. It is exactly like a full-service "bricks and mortar" bank,8 except for the absence of a teller.

Although the introduction of ATMs into the banking industry has made banking a much more convenient process,9 it has also brought some hassles. For example, sometimes the ATM "eats" the consumer's access card-refusing to return it for no reason.10 Alternatively, the money may be improperly dispensed, or deposits may be recorded incorrectly or not at all.11 When such mishaps do occur, consumers want to know immediately where and how they can correct the error.12 State legislatures have crafted laws to aid consumers when they encounter such plights. These laws normally take the form of Electronic Funds Transfer Acts.

The state of Iowa has such a law codified in Iowa Code Chapter 527, entitled the Electronic Transfer of Funds Act (EFTA).13 The provisions of the Iowa EFTA delineate requirements that financial institutions must satisfy in order to maintain or operate an ATM in the state of Iowa.14 Both state-chartered and national banks are subject to these restrictions. The goal of the Iowa state legislature in enacting the Iowa EFTA was to protect consumers who use ATMs. This purpose was plainly set out in the EFTA's "Statement of Intent," which is codified in section 527.1:

The general assembly declares, as its purpose in adopting this chapter to provide: (1) That electronic funds transfer systems should provide reliable service to the consumer with full protection of privacy of personal financial information. (2) That electronic funds transfer systems should not impair the safety and soundness of a person's funds.... (4) That regulation of electronic funds transfer systems should be fair .... 15

However, despite its benign purpose, the Eighth Circuit Court of Appeals struck down the Iowa EFTA in Bank One v. Guttau16 for significantly interfering with Bank One's ability to place and operate ATMs in Iowa.17 The court held that the National Bank Act (NBA),18 which authorizes national banks to exercise all incidental powers necessary to carry on the banking business, preempted the Iowa EFTA and therefore rendered its provisions invalid as to national banks such as Bank One.19 Thus, national banks are now allowed to set up ATMs in Iowa with virtually no restrictions, because the only other applicable federal law that regulates a national bank's ownership of an ATM, the Federal Electronic Funds Transfer Act,20 imposes no stringent barriers on national banks utilizing ATMs.

This Note examines this recent decision and explores the impact it will have on state banks, particularly in Iowa. Before delving into the substance of Bank One, this Note details the background leading up to this decision, beginning with the enactment of the NBA.21 This Note then summarizes several court decisions that have interpreted the NBA and its application to a state's regulation of ATMs within its borders.22 This section will also note how the Office of the Comptroller of the Currency (OCC) interpreted the laws at issue in those cases. …