Fifth Circuit Rules Amendment to Electronic Funds Transfer Act Not Retroactive

A three-judge panel of the Fifth Circuit has ruled that a 2012 amendment to the federal Electronic Funds Transfer Act (“EFTA”), which abolished the requirement that operators of automatic teller machines (“ATM”) maintain exterior notices of fees, was not retroactive. Prior to the amendment, the EFTA required fee notices to be located both externally, “in a prominent and conspicuous location on or at the automated teller machine” and also before the close of the customer’s ATM transaction, either “on the screen of the automated teller machine, or on a paper notice issued . . . before the consumer is irrevocably committed to completing the transaction.” 15 U.S.C. § 1693b(d)(3) (2011).

The EFTA’s generous statutory damages–up to $500,000 or one percent of the net worth of a defendant ATM operator–made the statute an attractive target for plaintiffs. Some plaintiffs sought out ATMs that lacked the proper external signs (or in some cases removed the notices in an act of vandalism) and, after accruing the ATM usage fee, brought suit. The result of such suits–often putative class action suits–was not just large payouts, but also the elimination of some ATMs. After settling the suits, financial institutions were often compelled to remove ATMs from areas where the exterior notices had been vandalized. Congress cited the inability of community banks and credit unions to perpetually litigate the external notice issue as a reason why those financial institutions shut down certain ATMs all together. In 2012, Congress simplified the EFTA by requiring only the one fee notice prior to the close of the customer’s transaction. The amendment enjoyed bipartisan support and was signed into law by President Obama.

The question that the Fifth Circuit recently answered in James L. Frey v. First National Bank Southwest, was whether or not the amendment was retroactive. Citing the U.S. Supreme Court’s “deeply rooted presumption against retroactivity,” the appeals court found that the amendment was silent as to retroactivity, and therefore not a barrier to the lawsuit brought by James Frey in 2011. The Fifth Circuit agreed with the district court that Frey was permitted to continue prosecuting his lawsuit because his cause of action accrued before the change in the law.


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