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Introduction
Four years ago, the national Automated Teller Machine (ATM) networks, Plus and Cirrus, first allowed their member banks to impose a second fee (the "double dip"), called a surcharge, on non-customers using their ATMs. Before that decision, ATM owners in shared ATM networks had already been compensated by receiving part of the so-called foreign fee most banks already charged their own customers who used an ATM owned by another bank. Even in those circumstances where a bank didn't impose a foreign fee on its own customers using others’ machines, the ATM owner always received a payment from the customer's bank. Its share is called an interchange fee. The network itself also receives a share, called a "switch" fee.
That second fee now charged by ATM owners, the ATM surcharge, has more than doubled the cost to consumers for using foreign ATMs and isn't shared with anyone. The surcharge contributes dramatically to the profits of ATM owners (In 1999, banks had their ninth straight year of record profits, the $71.7 billion reported to the FDIC exceeded last year's record of $62 billion by 16%, or $9.9 billion), lessens the benefit to consumers of shared ATM networks and encourages the growth of bigger banks. According to both the Federal Reserve Board's annual reports to Congress and New York Public Interest Research Group (NYPIRG) studies, bigger banks charge bigger fees, across the board. Not only is ATM surcharging unfair to consumers, since it is charging them twice for one transaction, it is also anti-competitive, since it encourages consumers to switch their accounts to bigger, higher-fee banks, limiting consumer choice.
The surcharge is also being assessed by more and more banks and the amount of the surcharge has increased significantly since the surcharge ban was lifted in 1996. In a survey of 366 ATMs in New York State conducted by NYPIRG in January, February and March 2000, 341 (93%) assessed surcharges on non-accountholders—compared to 79% in 1999, 45% in 1998 and 33% in 1997. The average fee charged by ATMs surveyed that surcharge in 2000 is $1.33 compared to $1.27 in 1999, $1.12 in 1998 and $1.05 in 1997.
In response to the unfair, anti-competitive and widespread surcharge, the Congress and over half the states sought, unsuccessfully, to ban surcharges between 1996-98. Not surprisingly, the powerful bank lobby was able to stymie these surcharge repeal efforts. Two state banking commissioners, in Iowa and Connecticut, did use existing authority to impose administrative bans on surcharges.
In 1999, the rebellion over unfair fees spread to the local level. In October 1999, the City Council of Santa Monica, California voted to ban surcharges. On Election Day, November 2, 1999, San Francisco voters banned surcharges by a margin of 66-34%.
Since then, several major cities, including New York, began taking the first steps toward banning surcharges. On January 19, 2000, New York City Council Speaker Peter Vallone introduced a bill, Intro. 680, that would ban bank-imposed ATM surcharges in New York City. That same day, the Council released a report, Guilty as Surcharged: Automated Teller Machines are Asking too Much. . Intro. 680 has the support of 35 of the 51 New York City Council Members and a broad coalition of consumer, student and senior organizations.
Then, on February 15, 2000, the town of Woodbridge, New Jersey banned surcharges, by a 9-0 vote. Meanwhile, the Pentagon proposed banning surcharges on all military bases. That decision is pending.
Following the victories last fall in California, the banks and federal regulators immediately obtained court injunctions against enforcement of the local laws, arguing that the National Bank Act preempts both state and local action over national banks. The California cities argue instead that the federal Electronic Funds Transfer Act clearly gives them authority over ATM fees.
Now, the two California cities are fighting to reinstate their bans in the Ninth Circuit Court of Appeals. The state of Iowa has asked the U.S. Supreme Court to reinstate its ban, which was eliminated by the courts. Connecticut's attorney general is fighting a legislative campaign to reenact that state's ban, which was eliminated in a state court holding that the Banking Commissioner misinterpreted his authority.
Throughout the battle, the banks have made three main arguments. First, they have argued that consumers got a free lunch before surcharges (and that surcharges are somehow not a second, double fee). Second, banks have argued that the marketplace should decide the level of ATM fees, not lawmakers. Finally, nationally-chartered banks, and the federal regulators, have argued that the National Bank Act preempts any authority over them by either states or localities.
This report includes:
- a statewide survey of ATM surcharges and a comparison of those results with the results of similar surveys conducted in 1999, 1998 and 1997,
- a summary of the status of ATM surcharge ban proposals with a spotlight on the New York City Council's Intro. 680,
- an examination of the numerous flaws in the arguments made by banks and
- a brief look at non-bank ATM owners - Independent Service Operators
(ISOs).
Next Section: A Comparison of 1997, 1998, 1999 & 2000 New York State Surveys of ATM Surcharges
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