FAQs

Frequently Asked Questions About ATM Surcharges

* How much does it actually cost a bank for an average ATM transaction? Top

* How much do banks typically charge for using ATM fees?

* How many banks impose ATM fees?

* How can we stop paying excessive ATM fees?

* Is it legal to ban ATM surcharges?

* What will happen if banks are not allowed to impose the ATM surcharge?

* What effect would a ban on surcharges have on competition in the banking industry?

* Who supports a ban on ATM surcharges?

Q. How much does it actually cost a bank for an average ATM transaction?

A. According to the U.S. Treasury Department’s Office of Thrift Supervision, the cost to a bank for an average ATM transaction is $0.27. That includes the amortization of the machine itself, the telecommunications cost, and the salaries of the people who oversee the system.

The cost does vary somewhat from location to location, based mostly on volume - i.e. it's more for ATMs that are not frequently used, because there are fewer transactions to cover the fixed cost of the equipment. [top]

Q. How much do banks typically charge for using ATM fees?

A. According to a 1999 survey by U.S. PIRG (Public Interest Research Group), consumers who use ATM machines owned by banks with which they do not have savings or checking accounts have to pay $2.57 per transaction. $1.20 is for the so-called "foreign fee", which banks charge their own customers for using another bank's ATM.

The other $1.37 is called the "surcharge" - a relatively new fee, which a bank charges other banks' customers for using its ATMs. (It is this latter "surcharge" which has been banned by the recently-passed ordinances in San Francisco and Santa Monica, California.)

A portion of the foreign fee is shared with the ATM owner and is known as the "interchange fee." Depending on the ATM network, your bank pays the ATM owner an interchange fee of 30-65 cents, and does so even if it is one of the few banks that does not charge you to use a foreign ATM. So, ATM owners have always been compensated when non-customers use their ATMs. That’s why, when they impose a second fee, called a surcharge, these owners are "charging you twice."

The surcharge varies somewhat from bank-to-bank, ranging from $0.50 to $2.50, with $1.50 being the most common fee.

That may not seem like much money. However, if a consumer withdraws money at the bank nearest to his or her workplace once every two weeks, those fees add up to $66.82 per year. That's equal to more than a day-and-a-half of income for someone earning minimum wage.[top]

Q. How many banks impose ATM fees?

A. According to the U.S. PIRG survey, virtually every bank charges the "foreign fee". Then, 93% of banks also impose the surcharge, which has only been generally allowed since April 1, 1996, when the two largest ATM networks, Plus and Cirrus, began to allow it.

The number of banks requiring the surcharge has risen dramatically in the past few years. Just between 1998 and 1999, the percentage of large banks imposing the surcharge rose from 83% to 95%, while the percentage of small banks doing so grew from 65% to 91%.[top]

Q. How can we stop paying excessive ATM fees?

A. There are at least six ways:

1. Move to Iowa or Connecticut. The banking commissioners in those states banned ATM surcharges three years ago.

2. Use your own bank or credit union ATM whenever possible. When you cannot, avoid double-dipping surcharge machines by using ATMs with a "No Surcharge" logo. For a national list containing links to many non-surcharging ATMs, try <http://www.atmsurcharges.com/>, a site run by a consumer, David Sorkin, who is a law professor in Illinois.

3. Write, call, or email your bank's president, asking him or her to reduce the fees.

4. Switch your account to a bank that doesn't charge ATM fees.

5. Take more money out when you use ATMs, and if you use your ATM card at a grocery store, ask for "cash back."

6. Most importantly, help pass legislation banning ATM fee surcharges. Urge your city, county, and state elected officials to take action and/or, where it's feasible, help pass an initiative. Use this web site for ideas.[top]

Q. Is it legal to ban ATM surcharges?

A. Yes. Congress could ban ATM surcharges and so could bank regulators, including the the chief national bank regulator, the Office of the Comptroller of the Currency (OCC). However, they have chosen not to do so, leaving it up to the states and cities.The banking industry' campaign contributions and high-powered lobbying efforts have blocked bi-partisan efforts to limit their power at the federal level.

State and local governments also have the power to ban the surcharges, under the federal consumer protection law, the Electronic Funds Transfer Act, which expressly reserves powers to local government to pass stronger laws than Congress, as long as those laws do not conflict with any federal law.

The banking industry and the OCC claim that ATMs operated by nationally-chartered banks are exempt from state and local ordinances, relying on their interpretation of the National Bank Act to assert that ATMs of national banks are regulated exclusively by federal law. However, even if the National Bank Act applied to ATM fees, and many experts believe it is clear that it is the Electronic Funds Transfer Act that applies, even the National Bank Act explicitly allows states (and cities) to enact stronger laws in the area of consumer protection. In 1994, the Congress found the OCC "overly-aggressive" in its preemption of state consumer laws.

Federal courts have upheld the three-year-old ban on ATM surcharges ordered by the Connecticut Banking Commissioner. They have also upheld a similar ban in Iowa, though the law is now in limbo because of a court review of the state's entire ATM regulatory system, of which the surcharge ban is just a part. Although an appellate court has overturned Iowa’s complex ATM law, that decision did not once discuss the ATM surcharge ban. Iowa is expected to appeal that decision. No bank is surcharging in either Connecticut or Iowa.[top]

Q. What will happen if banks are not allowed to impose the ATM surcharge?

A. Based on the experience in Iowa and Connecticut, where the surcharge has been banned the past three years, ATMs will still be plentiful and banks will still be profitable. At least one recent study found that the growth rate of ATMs in Connecticut is higher than the national average. Another study found that the number of ATMs per capita in Iowa is just about at the national average.

Wells Fargo and Bank of America, the two banks which reacted to the passage of the Santa Monica ban by blocking use of their ATMs by non-customers, own banks in Iowa. As far as can be told (the banks themselves aren't saying anything), the number of ATMs they own in those two states is comparable to every other state. (Further, although both banks shut down AATM service to non-customers in Santa Monica following the passage of that city’s ban, the banks provide service to all consumers in Iowa.)

After all, the banks will still continue to more than cover the costs of building and operating ATMs via their share of "foreign" fees they collect from their own customers when they use other banks' ATMs and/or from "interchange fees" that banks have always charged each other for customers' use of other banks' machines.

And, of course, greater use of ATMs - especially by senior citizens who have been wary of the technology -- will continue to enable banks to reduce their labor costs, by hiring and training fewer tellers . . . which was the original justification for ATMs.[top]

Q. What effect would a ban on surcharges have on competition in the banking industry?

A. By and large, it should help small banks and credit unions compete much more effectively.

Rising ATM fees have been - consciously or otherwise - a highly effective tool for large banks to overwhelm small ones. That's partly because the increases create a vicious circle for consumers and small banks alike: As fees for non-customers go up, consumers have a greater incentive to set up checking and savings accounts (and ultimately do all of their banking business) at the banks with the most ATMs; i.e. the most places where they won't have to pay fees. The banks with the most ATMs are invariably the ones with the most capital to invest and the largest pre-existing infrastructure. They're also the ones most capable of adding more ATMs, partly because - by already having the lion’s share of ATMs, they get the lion’s share of surcharge revenue, which means they have even more money to invest. For example, Wells Fargo and Bank of America have admitted that together, they make $5.5 million each year in surcharges in San Francisco. Nationally, all banks make $2-3 billion each year in ATM surcharges, based on PIRG and CBO estimates.

If the big banks get bigger, using ATM surcharges as a double-edged sword to gain market share, all consumers lose. That’s because both PIRG and the Federal Reserve Board have documented that bigger banks charge bigger fees. Fewer, larger banks have the ability to flex monopoly muscle. Taking away low-priced, smaller competitors takes away marketplace choice and leads to less consumer choice.[top]

Q. Who Supports A Ban On ATM Surcharges?

A. A broad array of groups and individuals, ranging from the Pentagon to the progressive City Council of Santa Monica, California.

Consumer groups, led by the state Public Interest Research Groups (PIRGs) oppose surcharges. CALPIRG was joined in opposition to surcharges by groups including Consumers Union (publisher of Consumer Reports) and AARP, as well as Consumer Action and the Consumer Federation of California.

Labor opposes surcharges. The Campaign To End Unfair ATM Fees in San Francisco was also led by the United Steelworkers. Other unions supported the campaign. A wide array of civic and political groups also supported the proposal. The leading candidates for mayor, incumbent Willie Brown and chief challenger Tom Ammiano, President of the Board of Supervisors, also supported the campaign.

In Santa Monica, California, the City Council voted to ban surcharges, led by two Green Party members, Kevin McKeown and Michael Feinstein.

In Congress, the battle has been led by former Senate Banking Committee Chairman Al D’Amato, a Republican, and Rep. Bernie Sanders, the House’s lone Independent, from Vermont.

Pentagon leaders have proposed a ban, since they don’t think servicemen and women should pay double fees when stationed far from the branch of their own home credit union or bank.[top]