The Financial Institutions Bureau (FIB) has become aware of the plans
by several Michigan banks to participate in interstate electronic funds
transfer (EFT) networks whereby customers of a participating bank who
have received the appropriate access materials under an agreement with
their bank may utilize EFT terminals of any bank participating in the
interstate system to:
It has been questioned whether this activity is permissable under existing
law and regulations. In connection with an earlier inquiry, a bank in northern
Michigan was informed that it was the FIB's then current position that neither
the Banking Code of 1969, MCLA 487.301; MSA 23.710(1) nor The Michigan Electronic
Funds Transfer Act, MCLA 488.1; MSA 23.1137(1) permitted the establishment
and use of an interstate system to allow cash withdrawals from deposit accounts.
The taking of deposits was not contemplated in that proposal.
- Withdraw from deposit accounts
- Obtain advance on credit card accounts
- Transfer between accounts in the same institution
- Inquire as to balances in deposit accounts
Since the FIB's earlier position was taken, it has become clear that
the customer convenience associated with the operation of an EFT program
will sooner or later mandate interstate systems similar to the intrastate
systems that now exist and are available for sharing by all depository
financial institutions. Accordingly, the FIB has again reviewed the concept
of interstate EFT systems and hereby adopts the policy stated herein based
upon the reasons given.
It is clear that federal law applicable to national banks requires the
conclusion that an EFT terminal or a Customer Bank Communication Terminal
(CBCT) is a branch. The leading case, which discusses the meaning of 12
U.S.C 36, relating to EFT branches of national banks is Independent Bankers
Association of America v. Smith 534 F. 2d 921 (1976) certificate denied,
10/4/76. (IBAA) It was found that:
"...any facility that performs the traditional bank functions
of receiving or disbursing funds is a "branch" of a national bank within
the meaning of Section 36(f) if (1) the facility is established (i.e.,
owned or rented) by the national bank, and (2) it offers the bank's customers
a convenience that gives the bank a competitive advantage over the banks
(national or state) that do not operate similar facilities." supra, 951,
The Banking Code of 1969, supra, Section 5 (d) provides, in part: "An electronic
funds transfer facility which is made available to 2 or more federal or
state-chartered financial institutions pursuant to a state statute which
regulates electronic funds transfer facilities is not a branch."
The state statute which regulates EFT facilities is the Electronic Funds
Transfer Act, supra. Section 10 of this act allows a financial institution
to make EFT terminals available to its customers anywhere in this state
if made available for sharing by other financial institutions.
The designation of an EFT facility as a branch pursuant to federal law
is not solely determinative of the EFT issue because of the language in
the IBAA case which appears to distinguish the "establishment" of an EFT
branch from the mere sharing or utilization of such a branch. In the first
instance, the bank which owns or rents the EFT terminal is the bank which
establishes the branch and must obtain regulatory approval. In the second
instance, a bank which shares or utilizes the facility pursuant to an
agreement to pay a transaction or activity fee or some other form of payment
for using the services without owning or renting the EFT terminal is not
establishing a branch.
In the interests of providing the broadest base of customer service
and eliminating the necessity for multiple EFT branch applications, this
argument is very appealing. This concept of minimal regulatory requirements
is also evidenced in the Michigan Electronic Funds Transfer Act supra,
where it is necessary only to give notice to the FIB of participation
in a shared EFT facility.
Michigan law regulating branches is found in Section 171 of the Banking
Code, supra. Section 171 is similar to 12 U.S.C. 36 in that approval of
the Bureau is necessary for any bank to "establish and operate a branch".
Therefore, it can be argued that a state-chartered bank which does not
own or rent an EFT facility is not "establishing" a branch. While this
argument is not necessary in connection with intrastate, off-premise EFT
terminals because of the exception found in Section 5, supra, defining
branches, it is useful in connection with an interstate off-premise facility.
Accordingly, it is the Bureau's position that for a state-chartered bank,
an EFT facility is not a branch if shared and located within the state
and it is an illegal branch if located outside the state only if the terminal
is owned or rented by the bank.
As indicated above, the benefits that inure to bank customers dictate
that interstate EFT facilities be made available. Furthermore, the proposed
system would be limited as indicated above. Functionally the withdrawal
of cash from a deposit account at a EFT termial is, from the customer's
viewpoint, indistinguishable from cashing a check at a retail store. There
is not a significant opportunity to obtain a competitive advantage if
all banks are given an opportunity to participate in such a system.
Therefore, it is the position of the FIB that a state-chartered bank
may participate in an interstate EFT system if:
- The bank doesn't establish (own or rent) an ATM not located in Michigan.
- The functions are limited to:
- withdrawals from deposit accounts.
- advances on credit card accounts.
- transfers between accounts at same institution.
- balance inquiry.
- The interstate system is available for participation by all banks
on a non-discriminatory basis.
- The terminals not located in Michigan do not accept deposits.
- The state wherein the EFT terminal is located does not prohibit such
an interstate system.
||Martha R. Seger, Ph.D, Commissioner
||Gary K. Mielock, Deputy Commissioner
||June 16, 1982