ATM Contracts: Key Considerations and Provisions

What is an ATM Contract?

ATM contracts are legal agreements between an ATM operator and a third party bank/financial institution that contain all of the terms and conditions regarding their relationship, duties and responsibilities within the ATM setting.
They detail the scope and procedure for the installation and maintenance of the ATM, the distribution of profits/fees, the bank’s responsibility to reimburse the operator for cash withdrawals, in addition to many other issues, such as whether the machine can be used for functions other than dispensing cash. In some jurisdictions, the ATM operator may be required to have a license, permit or pay a regulatory fee (usually nominal) for installation and operation of the ATM. A properly drafted contract insures that both parties are protected by stating the rights and obligations between them .
ATM contracts are typically made by two parties: (i) the Operator (or owner) of the ATM and (ii) a bank/financial institution. Each contract differs from one another based upon who the parties are; in some cases the ATM owner can be a bank/financial institution while the ‘third party’ is an independent agent.
ATM contracts give the ATM operator the right to install an ATM at a specific location, usually known as a point of sale (POS). The ATM operator sets up the ATM and manages it, including cash replenishment, maintenance and repairs. The bank makes sure that the ATM is properly funded and performs settlement functions. The parties then split profits generated from interchange fees gained whenever customers use the ATM.

Key Provisions of an ATM Contract

A bank or firm entering into an ATM contract will generally look for the following key components in the Agreement:
(a) the hardware provisions for the ATM network;
(b) the software provisions for the ATM network;
(c) the provisions concerning the service provided to customers accessing the ATM network;
(d) the maintenance contract of the ATM network;
(e) the maintenance provisions for the ATM equipment in the event of downtime or failure of some or all of the ATM network;
(f) the owners of certain components of the ATM network;
(g) the allocation of startup costs and costs of upkeep of certain components of the ATM network; and
(h) the agreement concerning how revenue will be divided among the partners entering the contract, and other compensation arrangements.

Legal Considerations for ATM Contracts

Legal Considerations in an ATM Contract
While the commercial aspects of an ATM contract are important, it is equally important for ATM operators to ensure that the contract is structured in a way that meets legal requirements. With ATMs now used by a wide variety of financial institutions, ATM or other financial transactions are now regulated by a number of federal and state financial service laws. These laws, and any regulations and guidance issued by regulators, impose requirements on the use of ATMs, including requirements pertaining to information that must be provided on or with any agreement and in any advertising for the services. These details are discussed in greater detail below.
Financial Services Laws
Used in connection with ATM transactions, many federal regulations and guidance regarding ATM operators are issued by the Federal Financial Institutions Examination Council ("FFIEC"). FFIEC, comprised of the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Federal Deposit Insurance Corporation, the Federal Reserve Banks, and state regulators, issues regulations, guidance, and conducts examinations of institutions it supervises. FFIEC provides a uniform charter, examination and reporting standards for financial institutions and requires that all financial institutions under its jurisdiction are treated consistently regardless of charter type.
As a result, ATMs are subject to other federal financial regulations and guidance such as Regulation E (12 CFR part 205) which implements the Electronic Fund Transfer Act ("EFTA") and establishes requirements for ATM transactions.[1] Regulation E requires disclosures regarding terms of use for ATM accounts and provides consumer protections for electronic funds transfers. The rules for Regulation E disclosures do provide some flexibility in how, where, and when they can be provided, but in connection with the ATM contract, agreements with financial institutions must specify disclosures supplied on or in connection with the ATM should comply with Regulation E and the consumer privacy provisions of regulations implemented by the FTC under the Gramm-Leach-Bliley and Fair Credit Reporting Acts.[2]
In addition to Regulation E, under the Bank Secrecy Act ("BSA"), financial institutions must comply with a number of requirements designed to fight money laundering, terrorist financing, and other criminal activities. Among other requirements, financial institutions are required to promulgate a written anti-money laundering program, maintain records and file reports of certain transactions with the U.S. Department of the Treasury, and report suspicious activity. In addition to compliance with BSA, if the ATM is connected to a credit union, the National Credit Union Administration ("NCUA"), is the financial service law regulator that oversees compliance with the BSA by federally chartered credit unions and their state-chartered affiliates.[3]
Other federal laws, such as the Fair Credit Reporting Act, the Fair Housing Act, the Fair and Accurate Credit Transactions Act, among others, and specific state laws may also be applicable to ATM operators. Because of the complexity of the numerous applicable financial services laws, each contract should be reviewed by legal counsel experienced with all the applicable federal and state laws.
Privacy Laws
Various federal and state privacy and data protection laws apply to ATM operators. Many ATM operators have access to confidential and personal information of consumers provided in connection with ATM transactions, which require compliance with a number of regulations and guidance pertaining to consumer privacy. In addition to privacy laws discussed in connection with Regulation E above, these laws include the Right to Financial Privacy Act and right to notice and opportunity to opt-out of the disclosure of non-public personal information to non-affiliated third parties. State privacy laws, like California’s Online Privacy Protection Act and California Civil Code § 1798.81.5 regarding electronic documents and records also may be applicable to the contract. Other laws, such as the Gramm-Leach-Bliley Act, may require the ATM operator to take steps to safeguard customer information through its job functions governed by the contract. Because of the numerous federal and state laws and the complexities of their application to ATM contracts, ATM operators must have all contracts reviewed by experience legal counsel.

Negotiating an ATM Contract

In the case of an independent ATM deployment, the negotiation process for the deployment of ATMs and the use and appearance of the operation generally follows the pattern of a typical contract negotiation; that is, there will likely be a back and forth between proposals and counterproposals, with, in some cases, a number of revisions before the final version is agreed. One often overlooked point is that the proposed terms may not be as favorable if there is a change in personnel, or the ownership of the company on either side of this transaction.
When negotiating an ATM placement agreement that you are proposing to your location, you should draft a first proposal that you regard as favorable to you and not simply submit a form contract. A first proposal that is viewed as already being favorable to the location will not likely be subject to much negotiation. In reverse against a proposal you have received from the location, you do not want to return with a counterproposal on that first negotiation day that would look favorable to you .
Some common points that are negotiated are the fee that will be paid on the deployment or transactions, whether there will be any revenue sharing, whether there will be any support services such as cleanliness of the area surrounding the ATM or upkeep of the ATM, and whether the ATM will be under your control or you can remove it if certain dates of performance are not met, such as maintaining a particular inventory level or cash level. You must remember at all times that the location you are proposing this transaction to is a business so if the location proposes something that seems favorable to you (and remember that many companies have preset agreement forms that they want to use), weigh the benefit carefully against the proposal and just because a proposal is favorable does not mean that a fair price can be obtained, in many cases.
In the case of a dispute, the language of the contract will generally prevail and a court will not rewrite a contract to make it more favorable to a party than it is. The exception is that only a court in the state where the transaction took place will have jurisdiction to enforce the contract and a court in a state where the contract is not enforceable will not enforce the contract under the conflict of law provisions.

Typical Issues in an ATM Contract

One of the common pitfalls in ATM contracts (as we have experienced on a number of occasions) is where the ATM is installed and then, for whatever reason, (usually not of your making) you cannot get cash into the machine. This is hugely frustrating for you and your customers and problematic because (unless you have written it into your contract) you cannot necessarily stop the ATM appearing on your cash back website.
The next most frequent problem we see is where the bank you are using for your system goes bust or chooses to enforce its option to buy back its asset from you (even if you have paid for the ATM). These clauses are normally called "decommission" clauses and come with a fixed 30 day notice period, so the decommissioning can come as an unpleasant surprise. Similarly we have seen terrible situations (which we will go into more detail on in a later blog post) with ISOs being held liable for breaches of contract by their ATM operators who "got it wrong".

Future Developments in ATM Contracts

As technology evolves and consumer preferences shift, the future of ATM contracts will continue to be shaped by the advent of new payment technologies. For example, the emergence of mobile payment systems and digital wallets is redefining how people use cash, and this could lead to significant demand for ATMs equipped with near field communication (NFC) technology that allows them to accept these forms of payment. ATM contracts may need to be amended to address these new capabilities, including the interoperability of the machines with different payment systems.
In addition, banks and ATMs may have to incorporate biometric authentication systems as a means of improving security and enhancing customer experience. This could lead to new contractual adjudications between ATM manufacturers and financial institutions over the use of such biometric systems . Likewise, as robots and other automated systems that handle cash become more prevalent, these could alter the contract structure and terms between the ATM providers and the financial institutions.
Emerging technologies like cryptocurrencies may also produce changes to the way ATMs function. Even though the use of bitcoin and other cryptocurrencies has decreased in recent years, more traditional forms of digital money have grown in popularity as consumer confidence in mobile payments and advanced e-commerce infrastructure has continued to rise. This trend could lead to more contractual considerations for ATMs to tap into these forms of payment, which could be of particular interest in countries where there have been struggles with banking infrastructure.