Federal banking law trumps a state law that provides for the processing of debit card transactions and electronic fund transfers, according to a ruling Tuesday in a case brought by an arm of U.S. Bank.

Judge James Gritzner said the Iowa Electronic Transmission of Funds Act cannot be used to prevent the bank from offering debit card processing services through state-chartered banks. Iowa banking officials have argued that the National Bank Act does not specifically control such transfers and therefore the state law should apply to the process.

Gritzner held that the federal law allows national banks to engage in any activity related to their business. The state law was passed in the 1970s to provide some uniformity and data security to bank customers using automated teller machines and debit cards.

U.S. Bank and its Elan Financial Services subsidiary filed the lawsuit in February 2010 in the U.S. District Court for the Southern District of Iowa in Des Moines. State bank officials and representatives of Shazam Inc., the Iowa company that was formed in 1975 by community banks and continues to be the only company in Iowa that provides central routing services, could not be reached for comment.

This is the second time that U.S. Bank has challenged the law after contracting with Farmers State Bank in Marion to provide the services. The first case was dismissed in 2008 after a judge ruled that Farmers State Bank did not have standing to bring the claim in federal court. Tuesday’s ruling applied to U.S. Bank’s services only, and it is unclear what impact it will have on Shazam and enforcement of the state law against other banks.

Click here for a related story in the Business Record.