San Francisco voters take on ATM fees
By Jay MacDonald • Bankrate.com

Now that San Francisco voters have left little doubt about their feelings on ATM surcharges, a tidal wave of opposition against these fees is expected to surge across America.

People in the "City by the Bay" poured into the voting booths Nov. 2 and approved Proposition F, a measure that prohibits banks and other financial institutions from charging an extra fee to ATM users with cards from other banks. ATMs in gas stations or convenience stores that are not bank-owned are not covered.

Even before the polls were open, bankers conceded they expected to lose.

The ballot measure was the first public referendum on the controversial double-fee practice since the nation's two largest ATM networks, Visa Plus and MasterCard Cirrus, opened the surcharge floodgates back in April 1996.

The San Francisco vote is another indicator that the revolution against the surcharges is growing. It is also an example of how people all over America can start a grass roots campaign that can derail ATM charges in their hometowns.

First, we take Santa Monica

Other major California cities -- Los Angeles, Berkeley, San Diego, Oakland and Sacramento -- are considering similar action. Even the Big Apple is thinking about it.

Elsewhere nationally, surcharges have been outlawed by banking officials in Connecticut, Iowa and Nebraska.

Banks won't take it lying down
Banks have vowed to take any surcharge ban to court. Their aim is to establish that only federal legislation -- not state or local government measures -- can control federally chartered banks. That's the vast majority of banks, and banking leaders say when the courts confirm this only small local or regional banks and credit unions would be covered by these bans.

Already in Iowa the 8^th U.S. Circuit Court of Appeals has backed the banks' claim that federal law does not allow states to regulate banks. Iowa is appealing the ruling. In Connecticut, the state Supreme Court will announce its decision on the same bank claim by the end of the December. If the state wins, says Connecticut Attorney General Richard Blumenthal, "I think other states around the country will follow our lead. It will send a powerful message to the banks that we can stop the fees that have nickeled and dimed, and now dollared consumers to distraction."

But back in 1990 the 9^th U.S. Circuit Court of Appeals, in a ruling long before ATM fees became a separate issue, said Washington had not made any laws that would stop a state from presiding over the operation of ATMs.

Industry observers say that while the banks have good cause to expect to win in the courts, next year is an election year and enough grass-roots support for mushrooming local and state bans during the next 12 months might tell Washington that the anti-ATM surcharge revolution is for real. And that, they say, might achieve a political rarity -- politicians in the nation's capital listening to the people.

ATMs are big money
What's at stake? According to the latest General Accounting Office figures, banks make $1.9 billion a year in surcharges for ATM transactions. A recent Bankrate.com analysis of 353 banks in America's 35 largest cities found that 78.4 percent of those banks charge an average fee of $1.38, with 41.4 percent charging a standard $1.50.

That charge is in addition to the so-called "off-us" fee banks charge for using another bank's ATM, giving the ATM surcharge its reputation as a double, or hidden, gouge.

And how much does that ATM transaction cost your bank? About two dimes and a nickel.

While introducing his "Fair ATM Fees for Consumers" bill into Congress last year (it went nowhere), former New York Republican Sen. Al D'Amato pointed out that the average ATM transaction costs banks about 25 cents. A 1997 federal study put the cost at 27 cents and that same study said using a teller costs banks as much as $2.93.

The free market issue
Banks see the issue as a clear-cut attempt by government and consumer groups to control a free market. They argue that surcharges are a necessary part of buying, installing and servicing ATMs, and that without them ATMs would become far less available, particularly in smaller rural communities. Those who use another bank's automated teller, they note, do so for convenience and are willing to pay for that convenience. Besides, there are plenty of ways to get cash from your own bank's ATM or a teller without paying a surcharge.

"Free commerce is the key issue," says Steve Verdier, chief legislative counsel for America's Community Bankers. "Once you start a price-control mechanism on one bank's services or one bank's fees, where do you stop?"

Baloney, says Adam Rudinsky, deputy city attorney for Santa Monica.

"It's a giant industry of pure profit," he says. "We always hear about market forces when there is something unfair going on that businesses want to keep on doing. Usually, if a business lowers its prices and increases its services, that will help gain customers. The surcharge is an example where they can raise their prices and gain customers because, in order to avoid the charges, you have to bank with them. It's anti-competitive by its very nature. The surcharge operates to interfere with the market, if anything. The market forces argument just doesn't make sense here."

George Trubow, director of the Center for Information Technology and Privacy Law at the John Marshall Law School in Chicago, is even more candid: "It's an outrageous fee," he says. "The banks are coming off their best year ever and they still charge these fees, figuring we won't miss a dollar here, a dollar there -- the death by a thousand cuts. It's incredible how greedy the banks are."

Hometown banks wait and wonder
These days, many small-town bankers may feel like the proverbial political football in the increasingly heated battle between consumer groups and the banking barons. On the one hand, they're losing customers who, tired of being dinged, use larger banks' ATM networks. On the other hand, they oppose in principle any legislative constraints on bank pricing.

Community banks also have the most to lose in competing against nonbank ATMs, which so far have not been included in the California uprising. Proposition F would not stop surcharges at ATMs in nonfinancial sites -- convenience stores, for example.

"We are clearly concerned about that because it restricts banks from charging but not other third parties that may own machines," says David Petro, executive vice president of the Independent Community Bankers of America.

Even the Pentagon is exploring banning surcharges on U.S. military bases. And in the future maybe, just maybe, you won't have to pay a surcharge if you use the ATM at the U.S. Research Station in Antarctica.

Jay MacDonald is a freelance writer based in Florida

-- Posted: Nov. 3, 1999