<p>ARLINGTON, Va. – The same Iowa law that restricted financial institutions from charging fees for ATM use also effectively limits credit unions’ ability to choose alternative ATM network providers. The result is a situation where Iowa credit unions seeking to join a fee-free network are effectively limited to Privileged Status, a subsidiary of the Shazam Network, a member-owned network whose position in the industry is effectively guaranteed by law. Until recently, Section 527 of the Iowa code prevented financial institutions with ATMs in Iowa from charging the users surcharges for their ATM use. A federal district court overturned that portion of the law on the grounds that it interfered with the rights of the nationally chartered banks that brought suit against it. But the rest of the law remained in force and those sections mandate that all Iowa financial institutions use “a central routing unit” to process all the transactions they cannot authorize or decline on the own. Now in the wake of that ruling which allowed for surcharges, Iowa credit unions are heading for a fee-free alternative and that, by state mandate, is Privileged Status. According to the Iowa Credit Union League, 117 Iowa credit unions moved to Privileged Status since the court overturned the law’s fee-free provisions. Even though the law allows for someone else to establish and license a central processing unit for the entire state, the law’s requirement effectively prevents networks like the 13,000 ATM-strong CO-OP Network from obtaining a foothold in the state. According to CO-OP Network there are only five of its machines in the entire state. By contrast, Privileged Status has 5,100 machines and is concentrated mainly in the Midwest. At the time it was passed in 1971 the measure was considered forward-looking and progressive, explained Pat Jury, vice-president of the Iowa Credit Union League. Iowa financial institutions on the verge of the new card and machine technologies wanted to ensure that their customers had nondiscriminatory access, which means that every Iowa cardholder could use every machine in the state, and be free of additional fees, which is the part of the law which has been overturned. However, the statute did not forsee the impact of ATM cards, machines and pin-numbered purchases and Jury admitted that the measure’s ATM provisions might have become outdated. “The big national ATM networks have really made it possible for every Iowa ATM card holder to get cash from an Iowa ATM whether or not it used the central processing unit,” he said. But Jury reported that the League’s credit union members still support the law, in part because of the their history with Shazam, the firm licensed to provide the “central processing unit” and because of the growing importance of pin-numbered point of sale transactions. Because of the law, Jury explained, an Iowa credit union member can walk into a store accepting the ATM cards for transactions and not have to worry about whether the store accepted its network or not, and retailers didn’t have to sign up with many different networks. Credit unions would be reluctant to give that up, he estimated. [email protected]</p>

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