The War on ATM Fees

By John Greenwald

Consumers have come to believe that automated teller machines should distribute cash. Banks believe that ATMs should collect some too--say, a $1.50 bite out of each cash withdrawal at a bank where you're not a customer. And that's just the first bite, because often when you make such a withdrawal, two banks can get into your wallet. The combined ATM fees can reach $3.50 or more. Such sums have now sparked a nationwide legislative brawl over profitable ATM surcharges.

Consider the turmoil at ATMs in San Francisco and Santa Monica, Calif., which became the first U.S. cities to ban bank ATM surcharges. Megabanks Wells Fargo and Bank of America fired back by closing their ATMs to nondepositors in Santa Monica and threatening to do the same in San Francisco when its law takes effect in December--all of which made cardholders even angrier. A federal judge sided with the banks by blocking the anti-fee laws until a full trial can determine their constitutionality. Says Santa Monica council member Michael Feinstein: "The electorate's response to the ordinance has been overwhelmingly positive."

So far, more than a dozen communities, from Los Angeles to Miami, have begun to target ATM surcharges. The most threatening to banks is New York City, where city council speaker Peter Vallone plans to unveil a proposal next month that would restrict ATM fees in the nation's financial capital. In Congress, Representative Bernard Sanders, a Vermont independent, has introduced federal anti-surcharge legislation. Even the Defense Department has joined the offensive: it wants to ban the fees from ATMs on military bases.

The surcharges are particularly galling to pols and consumer groups because they seem to amount to blatant double dipping. For example, a nondepositor who pays $1.50 for ATM cash often pays his own bank a $1-to-$2 fee for the same transaction. Such fees more than cover the cost of the transaction, which opponents put at 27[cents] per withdrawal. Says Santa Monica's Feinstein: "The banks say there is no free lunch for a service, when in fact they are asking us to pay twice for lunch."

Bankers justify the charges by noting that most banks provide ATMs free to their own customers and thus must find some other way to recover the cost of deploying the machines. "In San Francisco," says Bank of America spokesman Peter Magnani, "there is no charge 80% of the time when someone puts a card in a B. of A. machine." Moreover, he says, the cost of the transaction is just a small part of the bank's expenses, which include purchasing, installing and maintaining the machines as well as paying rent at nonbank locations. "Banks are being singled out for special treatment," Magnani says. "What other industry has been told it can't charge for products and services?" Concurs Robert Litan, a Brookings Institution economist who has completed a study of ATM fees for the American Bankers Association: "There is no justification for imposing surcharge bans on any type of ATM owner."

Revenues from surcharges have helped put ATMs in seemingly every shopping mall and supermarket in America. The number of machines has nearly doubled, from 139,000 in 1996, when the surcharges first took effect, to 227,000 today. Much of this growth has come from nonbank operators like gas stations and convenience stores, which charge stiff fees for the convenience, as the banks point out. A double standard? No, says Jon Golinger, consumer-program director of the California Public Interest Research Group. "The ATMs owned by banks make money." He notes that "ATMs owned by 7-Elevens would not exist if not for the surcharge."

It's a somewhat strained argument, but consumers have willing ears, reflecting years of growing distrust of bankers. Industry consolidation has led to the closing of thousands of branches, while fees have been rising on a wide variety of services, from credit cards to certified checks. Moreover, consumers can't forget that banks originally pushed ATMs as a free service enhancement. "There is a huge amount of customer dissatisfaction," says Marc Slavin, a deputy city attorney for San Francisco. "Banks aren't servicing. Their lines are long, and they charge for every service. All this has taken its toll."

That's clearly true in Santa Monica, where bank opponents are preparing for a lengthy court battle. "There's a sense that if you fight for an issue, things can change," says community activist Kathy Weremiuk. "People feel now, 'Yeah, what we did is right. The fees are too high. Maybe we'll win this one.'" If not, disgruntled ATM customers can always get cash from their nearest 7-Eleven, for a fee.

--Reported by Aixa M. Pascual/New York and Jacqueline Savaiano/Los Angeles

With reporting by Aixa M. Pascual/New York and Jacqueline Savaiano/Los Angeles