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ATM surcharge battle:
banks win Round 2
By Jay
MacDonald • Bankrate.com
 A
federal judge has thwarted Californians who voted to ban ATM surcharges.
U.S. District Judge Vaughn Walker
agreed with arguments by Bank of America and Wells Fargo that the
banks were controlled by federal regulations. He allowed the surcharges
to remain, granting the banks a temporary restraining order against
both San Francisco and Santa Monica on Nov. 15.
Both cities had voted to ban the
surcharges.
Just a week and a day after San
Francisco voters followed Santa Monica voters in banning ATM surcharges
-- a vote expected to unleash a tidal wave of NO votes around the
country in similar polls -- these two big banks had slapped back
at the California voters.
The banks announced Nov. 10 that
noncustomers would be banned from using their ATMs in these cities
which had dared to tell them to stop ATM surcharges.
San Franciscans 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. But they didn't say then that they would
get nasty about it with their own ban. They did, however, say that
they were confident of overturning it in court.
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
The vote came just three weeks after the Santa Monica City
Council approved similar language to end surcharging. That measure
goes into effect on Nov. 12. It can be enforced in two ways: a customer
who can prove in court that they have received a surcharge can receive
$250 per fee; and banks that practice widespread, intentional violation
of the ban may face $5,000 in punitive damages.
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
were ready to fight back
Gene Taylor, president of Bank of America's Western region,
said of the bank's new ban: "No business should be expected to provide
free service to noncustomers."
The banks also believed the courts would establish
that only federal legislation -- not state or local government measures
-- can control federally chartered banks.
Already in Iowa the 8th 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 9th 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. 17, 1999
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