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Report: Consumer Protection
Double ATM Fees, Triple Trouble
Five years ago, on April 1, 1996, the national ATM networks, Plus and Cirrus, first allowed their member banks to impose a second double fee, called a surcharge, on non-customers using their ATMs. Before 1996, ATM owners in shared ATM networks had always been compensated by receiving part of the so-called "foreign fee" that most banks already charged their own accountholders who used another owner's ATM. The part sent by the consumer's own bank to the ATM owner is called an "interchange fee." Even when a bank doesn't impose a foreign fee on its own accountholders using others' machines, the ATM owner has always received an interchange fee, which is a bank-to-bank payment.1
Surcharges aren't shared with anyone. Surcharges contribute dramatically to the profits of ATM owners, lessen the benefit to consumers of shared ATM networks and encourage the growth of bigger banks. Both the Federal Reserve Board's Annual Reports to Congress and PIRG studies show that bigger banks charge bigger fees to all their customers, even those who don't use ATMs. 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, ultimately limiting consumer choice. All consumers will end up paying higher bank fees unless surcharging is banned.
This PIRG national survey, done in March 2001, compares surcharging and other ATM fee practices at 333 banks and 43 credit unions to the results of six previous PIRG ATM surveys and reports since national surcharging began.2 Among the highlights of its findings:
- The cost of using an foreign ATM has nearly tripled since surcharging began in 1996. Before surcharging, consumers paid only an foreign fee, averaging $1.01 nationally, to use an foreign ATM. In 2001, consumers pay two fees, the surcharge and foreign fee. The national average combined surcharge ($1.47) and foreign fee ($1.39) in 2001 is $2.86.
- The average surcharge at all banks was $1.47 in 2001, up from $1.37 in 1999.
- Big banks3 continue to impose higher ATM fees and surcharge at higher rates. Big banks also lead the way in imposing a new ATM fee, the annual ATM card rental fee.
Positive Signs In 2001
Surcharge Ban Interest Remains High: Iowa's administrative ban on ATM surcharges remains in effect.4 Iowa is the only jurisdiction where a surcharge ban is being enforced. In 1999, the cities of Santa Monica, by city council vote, and San Francisco, by a 2-1 citizen referendum vote, banned ATM surcharges. These cities, and the cities of Woodbridge and Newark, NJ, which banned surcharges in 2000, have had their bans enjoined by federal district courts. The California cities have appealed to the U.S. Ninth Circuit Court of Appeals and a decision is expected late in the year. CALPIRG, U.S. PIRG and other consumer groups have supported the appeal.5 In December 2000, the New York City Council held hearings on a proposal introduced by Speaker Peter Vallone. Although interest in local ATM surcharge bans remains high in other cities and states, the federal court actions have had a chilling effect on enactment of additional bans. So far, courts have ruled that the National Bank Act preempts both state and local action over national banks. The cities, the states and consumer groups argue instead that the non-preemptive Electronic Funds Transfer Act clearly gives them authority to regulate ATM fees.
Selective Surcharge Alliances Grow: On the positive side, small banks and credit unions continue to offer selective surcharging alliance networks, where alliance members do not surcharge each other's customers, but do surcharge others. The largest alliance may be the Massachusetts-based SUM Network, which has expanded into Connecticut, New York, Ohio, other states and Puerto Rico. It includes over 250 member banks with over 1700 ATMs and competes with New England's surcharging leader, the massive FleetBoston ATM network.6 Other no-surcharge and selective surcharge alliances include the Pennsylvania Freedom Alliance, the Louisiana Community Cash Network, and numerous credit union networks. Until 1999, development of these small bank selective surcharge networks had been stymied by anti-competitive rules of ATM networks, until the U.S. Justice Department investigated.7
Big U.S. Bank Ends Surcharge, British Consumers Defeat Surcharges: The nation's 7th largest bank, Washington Mutual, eliminated surcharging in California and other states in 2000. In England, consumers in the United Kingdom will save an estimated £270m a year, because they can now use most of the nation's ATMs without paying fees.
Surcharge Rates, Fees Remain Low In Massachusetts, Connecticut
In Connecticut ($1.10, 71%) and Massachusetts ($1.00, 67%) average surcharges and surcharge rates reported are among the lowest in the nation, but actual surcharging levels may be even lower due to the penetration of the SUM selective surcharging program. Reported levels are low because surcharging did not start in either state in 1996, as it did elsewhere. The Connecticut Banking Commissioner prohibited surcharging for several years, until overturned on a technicality. In Massachusetts, a long-running MASSPIRG anti-surcharge campaign,8 as well as the strong threat of legislative action, caused banks to delay the onset of surcharging for several years. Those factors have kept rates low. However, actually surcharging rates may be even lower—25 of 29 Massachusetts banks surveyed are members of the SUM selective surcharge program. Similar findings may exist in Connecticut and other SUM states.
Negative Sign: Regulators Continue To Aid And Abet Big Banks
Throughout the regulatory, legislative and judicial battles on ATM surcharges, the banks have been armed with friend-of-the-court briefs and specious agency opinion letters prepared by the federal Office of the Comptroller of the Currency, the nation's chief national regulator.9 In a troubling recent development, the OCC has proposed an arcane amendment10 allegedly to "simplify" bank regulations. The proposal is clearly a backdoor attempt to improve the banks' litigation position in the Ninth Circuit Court of Appeals appeal by San Francisco and Santa Monica to uphold their fee bans. Comments are due by April 2. The OCC has also aided and abetted the banks in their efforts to overturn local laws requiring banks to offer low-cost accounts or regulating usurious and predatory payday lenders affiliated with banks.11
Surcharging is both anti-consumer and anti-competitive. First, it is unfair to charge consumers twice for one transaction. Second, big banks, with more ATMs, benefit more from surcharging than small banks and credit unions, which have lower fees in general, do. Surcharging exacerbates the trend toward industry consolidation. Fewer banks means less competition and, ultimately, higher fees for all consumers. PIRG urges support of state and federal legislation to ban ATM surcharging. Fee disclosure legislation is inadequate and will not work.
1 The network itself also receives a fee from the consumer's bank, called a "switch" fee.
2 PIRG released surcharge surveys in April 1996, October 1996, April 1997, April 1998, and April 1999. We did not release a surcharge survey in 2000. Instead, we released a detailed white paper on ATM surcharge and bank fee issues. See our ATM and bank fee report archive here. The white paper, "ATM Fee Backlash" (April 2000) is available on this web site here.
3 Big banks own the majority of ATMs. Out of the approximately 9,000 banks nationwide, the 300 largest control nearly two-thirds of all deposits, according to the Federal Deposit Insurance Corporation (FDIC). We define those as "big" banks. The Federal Reserve Board uses a similar methodology in its bank fee reports. It compares local banks and multi-state banks and obtains similar results. There is a strong correlation between big banks and multi-state banks. See the Federal Reserve's 2000 report at and find links to earlier reports here.
4 The courts have overturned other more minor aspects of Iowa ATM regulation.
5 See our friend of the court brief.
6 See http://www.massbankers.org "After extensive work with the NYCE Corporation, the Association helped to bring about a change in network rules that allowed for selective surcharging and led to a new NYCE program designed to offer smaller community banks and consumers a significant ATM option. The SUM Program now includes 250 Massachusetts Banks and credit unions offering more than 1,700 machines. The SUM Program was recently extended to the entire NYCE market area."
7 Following a complaint from State Senator Leonard Bodack (D-PA), a leading surcharge opponent, the U.S. Department of Justice began an investigation in the summer of 1998 into ATM network rules that resulted in the networks dropping anti-competitive rules designed to prevent small banks from forming selective surcharge alliances. In most states, ATM network ownership and management control is based on the number of ATMs a bank member contributes to the shared network, so bigger banks control policies.
9 The nation's chief thrift and savings and loan regulator, the Office of Thrift Supervision (OTS) has also been active.
10 See Federal Register of January 30, 2001, Volume 66, Number 20, Page 8178-8184
11 See our "OCC Watch" information.
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