FDIC Issues Narrow Interpretation of ATM Exception in Definition of Domestic Branch
On August 9, 2024, the US Federal Deposit Insurance Corporation (FDIC) issued an interpretation of the exclusion of automated teller machines (ATMs) and remote service units (RSUs) from the definition of a domestic branch. The interpretation is notable for being narrower than the Office of the Comptroller of the Currency’s (OCC) corresponding interpretations for federally chartered depository institutions.
Under the Federal Deposit Insurance Act, state nonmember banks must obtain the FDIC’s consent before establishing a domestic branch.1 State nonmember banks should consider the FDIC’s new interpretation when establishing non-branch facilities. They also might review their existing non-branch facilities to determine whether the existing classification remains correct or requires changes to avoid branch classification, as well as potentially other branch-related requirements.
Background
Under federal law, a branch generally is a facility that is (i) established by a bank, (ii) accessible to the public, and (iii) a location at which deposits are received or checks paid or money lent.2 As noted above, federal law explicitly excludes ATMs and RSUs from the definition of domestic branch.
A bank generally cannot establish or close a branch without approval from or notice to its federal regulator.3 In contrast, no notice or approval is required to establish, relocate, or close an ATM or RSU.4 Additionally, state law limitations that might restrict the establishment of branches do not apply to ATMs and RSUs established by national banks.5
FDIC Interpretation
The FDIC’s interpretation provides that a state nonmember bank is not required to obtain branch approval to establish an RSU that offers interactive features (an “Interactive Teller Machine” or “ITM”) if:
- The ITM is an automated, unstaffed banking facility owned or operated by, or operated exclusively for, the bank that is equipped to enable existing customers to initiate an interactive session with remotely located bank personnel;
- To the extent that bank personnel have the ability to remotely assist the customer with the operation of the ITM to perform core banking functions (i.e., deposits, lending, payments), customers must also be able to perform these transactions without the involvement of bank personnel and must have the sole discretion to initiate and terminate interactive sessions with bank personnel; and
- Noncustomers may use the ITM only if they are limited to the same functionality that is typically provided by an ATM to a noncustomer (e.g., cash withdrawal) and a noncustomer is unable to engage a live remote teller to remotely perform core banking functions.
This interpretation is considerably narrower than the analogous OCC interpretations for federally chartered depository institutions. Specifically, the OCC has:
- Stated that an RSU may be used to receive loan and deposit account applications from a new customer.6 A noncustomer may engage with bank personnel to complete the application process on the RSU, as well as generally use the advanced features of the RSU.7 There are no limits on the advanced features that an RSU may offer to noncustomers.8 These OCC interpretations are broader than the FDIC’s position that an ITM may not provide interactive or advanced functions to a noncustomer.
- Not indicated that a customer must have the sole discretion to terminate an interactive session with bank personnel.9 While such a feature could be inferred (e.g., the customer walks away from the screen), the FDIC appears to view it as an explicit requirement.
Additionally, the OCC has indicated that an RSU may be established at a staffed non-branch facility as long as staff involvement is not required to operate the RSU.10The FDIC’s interpretation states that the ITM must be an unstaffed facility but does not specify if this includes combined or shared facilities.
Takeaways
The FDIC’s new interpretation may preclude banks from adding new customer service features to their ATMs and RSUs out of a fear that branch approval will be required. The Consumer Financial Protection Bureau (CFPB) has encouraged banks to offer better customer service, and the FDIC’s restrictive approach to ATM and RSU functionality could make this more difficult by limiting the engagement of bank personnel with customers at certain non-branch locations.
Additionally, the FDIC’s new interpretation may foreclose the use of ATMs and RSUs to provide advanced services to noncustomers, potentially preventing banks from using them to open accounts for such persons. This is particularly notable given the federal banking agencies’ longstanding efforts to reduce the unbanked and underbanked populations, as well as the CFPB’s recent efforts to address “banking deserts.”11
Finally, while the FDIC’s interpretation relates exclusively to the applicability of federal law’s branch establishment requirements for state nonmember banks, there are no assurances that the FDIC would not subsequently apply the same analysis in other contexts. If the FDIC were to apply it in the context of the prohibition against using interstate branches primarily for deposit production or reporting on the Summary of Deposits survey, then banks might need to re-evaluate how they assign deposits. In the context of the Community Reinvestment Act, there could be a concern that co-locating an ITM that has obtained branch approval with a staffed loan production office or deposit production office might create a facility-based assessment area. Further, this interpretation could lead states to revisit the definitions in their branch licensing laws.
1 12 U.S.C. § 1828(d).
2 12 U.S.C. §§ 36(j), 1813(o).
3 12 U.S.C. §§ 36(i), 321, 1828(d),1831r-1. Notably, the FDIC’s interpretation does not purport to apply to the definition of branch in the branch closing statute, which was established on an interagency basis. See 12 U.S.C. § 1831r-1; 64 Fed. Reg. 34,844 (June 29, 1999). It also does not mention the definition of branch that is applicable to state savings associations.
4 However, certain ATMs established in the District of Columbia by savings associations may require federal approval. 12 U.S.C. § 1464(m).
5 E.g., 12 U.S.C. § 1831u(a)(4).
6 OCC, Interp. Ltr. 772 (Mar. 6, 1997).
7 OCC, Cond. App. 313 (July 9, 1999).
8 E.g., OCC, Cond. App. 313 (July 9, 1999) (“the ATM will be available to bank customers and noncustomers”); OCC, Interp. Ltr. 814 (Nov. 3, 1997) (“a facility where members of the public -- customers and noncustomers alike -- receive substantially similar services on substantially similar terms is not a facility created to attract bank customers”).
9 OCC, Interp. Ltr. 1165 (June 28, 2019) (“The customer can also decide to initiate an interactive session”).
11 FDIC, Get Banked! (Aug. 2024) (“The FDIC’s work on accessible banking goes back over a decade”); CFPB, Reports on Banking Access and Consumer Finance in Southern States (June 21, 2023) (“Many areas of the Southern region are considered ‘banking deserts’ because of the absence of sufficient bank or credit union options for local communities”).
