NCSL LegisBrief: ATM Fees

NCSL LegisBrief

Briefing Papers On the Important Issues of the Day

ATM Fees

By Kelly Anders and Justin Howery

Aug/Sept. 2000
Volume 8, Number 34

Fees and Surcharges. Automated teller machine ("ATM") charges became the focus of a national debate in 1999 when voters in San Francisco and Santa Monica endorsed ballot propositions to eliminate them. At issue are fees and surcharges. A bank may charge its customers fees for using an ATM owned by another bank, and the owner of the ATM may charge noncustomers surcharges for using its machine. The result can be two charges for a single transaction. The San Francisco and Santa Monica ordinances mandated "equal access" to ATM networks for customers of all banks by prohibiting charges to noncustomers but allowing charges to customers. The result is one charge for one transaction.

Following the California bans, banks 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 cities argued that the federal Electronic Funds Transfer Act clearly gives them authority over ATM fees. The two cities are currently fighting to reinstate their bans in the Ninth Circuit Court of Appeals.

Since then, several major cities, including New York and Chicago, have begun taking the first steps toward banning surcharges. The town of Woodbridge, N.J., banned surcharges in February. And the Pentagon has proposed banning surcharges on all military bases. That decision is pending.

History of ATMs. ATMs became common in the 1970s and '80s when banks moved to cut costs by shifting the work of human tellers to machines. Until 1996, the nation's two largest ATM networks, Cirrus and Plus, prohibited member banks from charging fees, hoping to encourage customers to use teller machines rather than tellers. When the networks lifted their prohibition on fees, banks began recovering the costs of operating the machines by charging fees. Since then the number of ATMs has nearly doubled to 227,000 from 123,000 in 1997, according to the American Bankers Association.

When banks began charging ATM fees, it became economically practical for them to install ATMs at locations away from their offices, such as at supermarkets, convenience stores, shopping malls, hotels and airports. About half of all ATMs are at places other than banks.

Banks argue that prohibiting fees would force banks to close ATMs. Customers expect the convenience of them and are willing to pay for it. Opponents counter that fees create a consumer climate that favors larger banks over smaller banks, because consumers will choose banks with a larger number of ATMs in order to avoid fees.

The Cost of Convenience. Banks maintain that the issue is the free market itself. They have the same right to charge for services that any business has. ATM fees are the price that consumers pay for convenience. Opponents counter that ATM fees have become a profit center for banks. The machines allow banks to save money on human tellers and at the same time make a profit on each transaction.

A 1997 study by the General Accounting Office (GAO) showed that an ATM transaction costs banks an average of 27 cents, while a teller transaction can cost banks as much as $2.93. A 1998 GAO survey found that the average surcharge in 1998 was $0.96, up from $0.17 in 1995. According to a 1999 study by the Public Interest Research Group, 45 percent of 860 ATMs in 27 states and the District of Columbia surcharged noncustomers in 1997.

State Actions

This year, ATM fee legislation was considered in nine states-California, Connecticut, Illinois, Indiana, Maryland, New Hampshire, New Jersey, New York and Rhode Island-but none passed. Last year, California, Connecticut, Indiana, New Hampshire, New York, Rhode Island and West Virginia considered placing a cap on fees, but no legislation passed then, either.

Arkansas, Mississippi and Wyoming currently cap ATM charges. Connecticut and Iowa have attempted to ban surcharges administratively, but neither has done so successfully. The Connecticut Supreme Court recently ruled that the state's banking commissioner does not have statutory authority to ban ATM fees. In Iowa, the U.S. Supreme Court let stand a lower court ruling that the National Bank Act prevents the state from regulating ATMs operated by nationally chartered banks.

Selected References

General Accounting Office. Automated Teller Machines: Survey Results Indicate Banks' Surcharge Fees Have Increased. Washington, D.C.: GGD-98-101, April 24, 1998.

General Accounting Office. Automated Teller Machines: Banks Reported That Use of Surcharge Fees Has Increased. Washington, D.C.: GGD-97-90, May 16, 1997.

Public Interest Research Group. ATMs: Always Taking Money: A Fourth PIRG National Survey of ATM Surcharging Rates. Washington, D.C., April 1999.

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Illustration for "Average ATM Surcharge Fees (dollars)" is not available online. Please contact the author for a copy or view the Adobe Acrobat version. Adobe Version

Contacts for More Information

Heather Morton
NCSL-Denver
(303) 364-7700

Neal Osten
NCSL-Washington, D.C.
(202) 624-8660
neal.osten@ncsl.org

Consumer Bankers Association
(703) 276-1750
http://www.cbanet.org/Communicatons/atmfees.htm

U.S. Public Interest Research Group
(202) 546-9707
http://www.pirg.org/consumer/banks/