transfer regulations violate the statutory prohibition against withdrawals by negotiable instrument for third-party payment from savings accounts. 12 U.S.C. § 1832(a). Under the AFT regulations a bank customer's check drawn on a zero balance account to a third party triggers a withdrawal from the savings account to cover the check. Although the existence of a checking account which serves as a conduit for payment to the third party factually distinguishes an AFT account from statutorily-authorized NOW accounts, plaintiff maintains that the checking account does not prevent the AFT-linked accounts from functioning as a NOW account.
Although plaintiff attempts to minimize the significance of the checking account linked to AFT service, its importance cannot be ignored. Two accounts are required to operate the AFT service and no negotiable orders are drawn on or third party payment made from the savings deposit. Defendants have suggested that AFT is merely an extension of the telephone transfer bill payer services. Telephone transfer permits a bank to transfer a depositor's funds from a savings to a demand deposit account pursuant to transfer instructions conveyed by telephone.
Under AFT plans, such transfers would be automatically triggered on the basis of a prior authorization rather than requiring an individual telephone conversation for each transaction. AFT services also resemble bill payer services, for in both the depositor's bank withdraws funds from the depositor's account on the basis of a single prearrangement with the depositor, on an automatic basis, and without any further participation or action by the depositor.
The only difference is that bill payer services send the withdrawn funds by check or direct deposit to the depositor's creditors while funds withdrawn by AFT are added directly to the depositor's demand deposit account.
After oral argument of the parties' cross-motions for summary judgment was held in this case, both houses of Congress enacted a bill entitled "The Financial Institutions Regulatory and Interest Rate Control Act of 1978."
Defendants urge that the passage of this bill indicates congressional awareness of the AFT regulations and that body's intent to defer to defendant agencies' expertise in the affected subject areas. The Court cannot agree with this characterization. In its report discussing the interest rate differential provision, the Senate Committee on Banking, Housing, and Urban Affairs declared that the proposed bill "is not intended to authorize automatic transfer accounts nor to preclude a finding by a court of competent jurisdiction that such accounts are either permissible or impermissible under existing law."
During the House debate on the measure, explicit recognition was given to the present litigation challenging the legality of the AFT regulations and no opinion was expressed on the question.
The passage of "The Financial Institutions Regulatory and Interest Rate Control Act of 1978" thus cannot be viewed as in any way dispositive of the legal questions raised by AFT services.
The final issue raised by plaintiff is that defendants acted arbitrarily and capriciously in adopting the AFT regulations. The specific claim is that it cannot be determined from the record whether defendants gave proper consideration to the competitive impact of AFT plans and to the impact of such plans on deposit reserve policies.
The arbitrary and capricious standard is the most limited form of judicial review over agency actions and the scope of such review is narrow and highly deferential to the agency. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415, 91 S. Ct. 814, 28 L. Ed. 2d 136 (1971). Here the administrative record of the Board proceedings alone comprised over 400 pages in addition to the almost 1,400 written comments received on AFT services.
Given such a fully developed record and the widespread attention the AFT proposals have received at every stage of their consideration, there appears to be no support for plaintiff's argument that the decision on AFT services was arbitrary and capricious except for the agencies' lack of agreement with plaintiff's position.
In conclusion the Court finds that automatic fund transfer regulations do not violate the statutory prohibitions against the payment of interest on demand deposits or against negotiable instruments drawn on savings deposits. This result is supported by the convenience and other benefits AFT services will produce for bank customers and by the role such services will play in reducing the number of checks returned for insufficient funds. Therefore, defendants' motion for summary judgment is granted and all other motions are denied.