On August 9, 2024, the FDIC released a Financial Institution Letter (“FIL”) offering limited guidance on the use of interactive teller machines or ITMs. Specifically, the FDIC addressed the question of whether an ITM would be considered a remote service unit (“RSU”), which a bank may establish without approval, or a branch, which requires approval under Section 18(d) of the FDI Act.
The guidance states that an ITM would require approval as a branch unless:
- The ITM is an automated, unstaffed banking facility owned or operated by, or operated exclusively for, the bank, which is equipped to enable existing customers to initiate an interactive session with remotely located bank personnel; and
- 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, customers must also be able to perform such transactions without the involvement of bank personnel and must have the sole discretion to initiate and terminate interactive sessions with bank personnel
It seems, essentially, that an ITM will require a branch application unless it functions primarily as an ATM, with any interactive assistance from bank personnel being 1) unnecessary for core banking functions, 2) provided by remotely-located bank employees, and 3) initiated and terminated by the customer.
The guidance further states “This FIL relates exclusively to the applicability of section 18(d)’s branch establishment requirements to state nonmember banks.” This is an important part of the guidance, because it places substantial limits on how it can be used and clarifies that ITMs and branches are not fully interchangeable for all purposes. It also leaves several questions unanswered, so banks should be careful not to read too much into this FIL.
First, of course, this guidance can only be used by state nonmember banks. Because this is not interagency guidance, banks regulated by agencies other than the FDIC should probably consult their regulators directly.
Additionally, the FDIC does not discuss how the rules about branch closings would apply to ITMs, which leaves open questions like:
- Would closing an ITM be considered a branch closure?
- What would be the appropriate process if a bank wants to place a brick-and-mortar branch at a location that currently has an ITM, or within 1,000 feet of an ITM? Would the brick-and-mortar branch require an application for a new branch?
- What would be the process for a bank that wants to close a brick-and-mortar branch and replace it with an ITM? Would this be considered a branch closure?
Similarly, for signage purposes, it’s probably clear that FDIC signage will be required if the ITM is taking insured deposits. It seems like an ITM would likely be in the category of “ATMs and like devices” that are considered “digital deposit taking channels” requiring the new digital sign, but clarifying guidance would be useful in this area as well.
Finally, although an ITM may be a ‘branch’ for purposes of whether an application is required, it may not be considered a branch for other purposes, such as the Community Reinvestment Act (“CRA”). Because branch locations are the basis for determining a bank’s CRA assessment areas, treating ITMs as branches for CRA purposes could have significant consequences for banks. The CRA defines a branch as “a staffed banking facility approved as a branch.” The FDIC guidance indicates that ITMs may need to be “approved as a branch,” but it is unclear whether ITMs would be considered “staffed” because of the interactive features available. Until we have further guidance on this question, it may be worthwhile for banks to include a review of potential CRA consequences when determining whether and where to place ITMs.
Because the guidance is explicitly limited only to whether a branch application is required to establish a new ITM, banks should avoid extrapolating too much from this guidance, continue to be cautious about using ITMs and, when in doubt, contact regulators for additional guidance. As always, Compliance Alliance will continue to monitor developments in this area, and provide updates as they come available. If you have any further questions, do not hesitate to let us know.