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Fee ban bad, free economy good
Banning ATM fees will ultimately hurt consumers, says a noted economist in a study recently released by the American Bankers Association. "Laws banning ATM surcharges are intended to help consumers. On the contrary, however, these prohibitions will harm consumers in one or both of two ways: fewer ATMs and/or higher charges at ATMs owned by non banks," said Robert E. Litan, vice president and director of the Economic Studies Program of the Brookings Institution, who conducted the study for the ABA. Litan's conclusion applies to municipal initiatives in the California cities of Santa Monica and San Francisco to ban banks from charging non customers for using their machines. "Prohibitions on surcharges may be appealing on the surface, but a deeper look into the economics of the ATM business reveals that they are misguided and likely to generate undesirable and probably unintended consequences," Litan said. Litan points out that a surge of ATMs has been made possible by the new revenue produced by surcharges. In fact, ATM growth rates doubled after these charges were allowed in 1996, particularly in low traffic, off-premise locations. "The numbers of ATMs in off-premise locations have exploded, and consumers now have available the added convenience of accessing their accounts from many additional locations. At the same time, consumers who don't want to pay for the added convenience don't have to," he said. He noted that most banks offer unlimited free use of their ATMs to their own customers, as well as other options such as getting cash back at the grocery store when making a purchase using an ATM card. ATM locations that banks would be forced to abandon probably would be picked up by non-banks, which can continue surcharging under prohibitions like the ones in Santa Monica and San Francisco. "Because discriminatory surcharge bans shelter non-bank owners from the competition supplied by financial institutions, they will tend to reduce competition in the ATM market, which may lead to even higher surcharges at many machines," Litan said. A copy of Litan's full report is available at ABA
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