It's getting hard to avoid ATMs
but easier to avoid their ever-higher fees
By Michelle Samaad • Bankrate.com

Doughnut and latte runs used to mean stopping at the automated teller machine in the wee hours of the morning for Camella Harris, a nurse who works "weird shifts."

But, to be physically safe and avoid ATM fees, Harris now asks for cash back at the grocery store. "It's become a habit," says the 27-year old, who lives in Lake Worth, Fla.

Like Harris, consumers are getting savvier about avoiding ATM fees and surcharges, despite the lure of terminals located in every nook and cranny. There's even a machine in a California cemetery.

ATMs rack up $650 billion in transactions each year. The market is so filled with cash dispensers that the number of shipments worldwide rose only 4 percent in 1998 after a 25 percent growth rate in 1997. But does saturation mean the elimination of fees? Don't count on it, say some industry watchers.

Couple the growth with the rise in ATM fees and the result is a rebellion by some consumer groups, financial networks and states that are fighting to ban ATM fees.

Banks: Fees pay for ATMs
Since ATMs are all over the place, it seems the justification for charging fees would be weak. Not so, according to banks. They say the machines operated at a loss for years after first appearing in 1975. ATM surcharges helped them recoup costs, including the machine's purchase price and the costs of leasing space and maintaining the machine.

Today, customers can get hit with a number of fees, ranging from 50 cents to $10. One is the surcharge -- the fee that people pay if they use ATM machines at banks and credit unions where they have no accounts. The practice of imposing the fee started on a national basis in April 1996 when MasterCard's Cirrus network and Visa's Plus network lifted bans on surcharging. Since then, two ATM users have emerged: those who are fighting the fee and those who don't mind paying for the convenience.

Be it in the mall, gas station or grocery store, consumers are flocking to ATMs that don't belong to their bank. The number of nonbank ATMs grew to 49,800 in 1997 from 36,400 in 1996 according to Mentis Corp., a research group based in Durham, N.C.

Depending on the bank or credit union, the average surcharge is $1.37, up from $1.23 a year ago, according to a recent study by the U.S. Public Interest Research Group, a consumer advocacy group based in Washington, D.C.

Big banks, on average, charged $1.42; small banks charged $1.30 and credit unions charged 98 cents.

"Surcharging has actually contributed to the continued deployment of off-premise ATMs by banks and non-banks because more people are using them," says Kristen Min, a Mentis research manager.

A new way to make money
What it comes down to is "banks raising fees, inventing new fees and making it harder for consumers to avoid fees," says Ed Mierzwinski, consumer program director of the public interest group.

On average in 1997, banks paid only 25 cents per transaction to operate an ATM, far less than the $1.15 it cost if a customer visited a teller, according to a 1997 study by the U.S. PIRG. Yet banks often justify imposing fees because of the high maintenance needed to keep ATMs running.

That's where the surcharge fee comes into play. Banks and credit unions say they are justified in charging non-customers to use their ATMs because it means the customers are paying for the convenience, and it keeps costs down for their own customers. Yet some consumers groups argue that it's a junk fee.

"The surcharge fee amounts to double-dipping because part of that fee charged by the customer's bank goes toward reimbursing the ATM's owner," says Mark Ferrulo, director of Florida's PIRG office. "So when you use someone's else ATM, the owner is actually being paid twice for the transaction."

No-fees band together
To counter, credit unions, small community banks and a few others banded together to form a handful of no-surcharge alliances. Customers can use the alliance's ATM machines without being charged by alliance members; however, the customer's own financial institution may still charge a fee for off-site transactions. The membership and location of surcharge-free ATMs is constantly changing, so check with your credit union to see if it is a member.

The latest wrinkle is selective surcharging. Targeted at customers who have accounts at large banks, here's how it works: ATM owners -- mainly at small banks -- agree not to surcharge each other's customers, but will surcharge customers of institutions that are not members of the alliance -- usually big banks.

Another plus for the no-surcharge movement is the 15 states that are pushing legislation to ban such fees. So far, only Connecticut and Iowa have been successful.

Connecticut began waging war against the surcharge in 1995. Fleet Bank and First Union National Bank have fought just as aggressively to lift the ban there, but to no avail.

In April, Berkeley, Calif., became the first city in the nation to ban the ATM surcharge for people who use terminals that belong to someone other than their own bank. The college town went a step further, allowing ATM users to file civil lawsuits should a financial institution impose the fee.

The ban may set the tone for other state fights and possibly even the federal government, says Mierzwinski.

Ways to keep your money
In the midst of state battles and partnerships to counter fees, how are consumers avoiding ATM costs? One obvious way is that people are sticking to their own financial institution's ATM more than ever, despite the convenience of the terminal at the gas station down the street. They're also withdrawing more money at one time, eliminating back-and-forth trips and also avoiding repeated surcharges. The No. 1 move is taking additional money at the time of grocery purchases, according to a survey by Star System Inc., an ATM network based in San Diego.

"We're seeing the ATM/debit card market continue to grow as point-of-sale is quickly becoming the preferred method of payment," says Nikki Waters, executive vice president of Star System. "More consumers are becoming aware of the benefits of using their ATM/debit cards at stores for purchases and cash."

Despite hefty fees, an already saturated market and no-surcharge alliances, what can consumers look forward to over the next few years?

"People can expect ATMs in fast food restaurants, coffee shops and other areas that have yet to be penetrated," Min predicts.

Also on the horizon: customized messages alerting consumers that their account balance is below the minimum; messages greeting customers by name; and attempting to cross-sell other bank products. Foreign currency exchanges are also expected to beef up ATM functions.

"Say the surcharge and other related fees are done away with," Mierzwinski says, "With these so-called enhancements, banks will have another reason to impose another fee."

-- Posted: May 18, 1999