Article

Berkeley permit fees could chill ISO business

ISOs doing business in Berkeley, Calif., say newly enforced permit fees could shut down their ATMS.

June 1, 2005

Berkeley, Calif., coffee shop owner Fred Showcouh said he has no choice. Faced with paying thousands of dollars for a city permit to keep the ATM he purchased for his shop, Showcouh plans simply to pull the plug.

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"It's an expensive process," Showcouh said. "They said it would cost me at least $1,500 to get approval, and then it would be several hundred dollars a year to keep the machine. It just doesn't make sense to me. We are really not making much money off of it; we just have it as a service to our customers."

In 1998, the city of Berkeley passed an ordinance that "Automatic Teller Machines (when not part of a retail financial service) must have an administrative use permit." In short, that means any ATM that is not owned and operated by a financial institution is subject to a permit fee.

Gregory Daniel, Berkeley's head of code enforcement, said the decision to crack down on violators of the 7-year-old ordinance came as part of a plan to step up zoning enforcement across the board.

"There has been a perception by some that we are targeting ATMs, and that is not true," Daniel said. "From our perspective, we don't want (ATMs) to be removed … we just want to make sure they have the proper permit."

Daniel said the recent crackdown on ATM-permit violations came about to ensure security at independently owned ATMs.

"My hunch is that there were some safety concerns," he said.

But Michael Keller, general counsel for Houston-based Cardtronics Inc., the largest ISO in the world, argues that he has seen no statistical information to support claims that independently owned ATMs are less safe.

J. Michael Brown, on the North American board of the ATM Industry Association, said requiring only independent ATM operators to go through a costly permitting process based on safety concerns is misguided.

What's Important Berkeley, Calif., began enforcing a 1998 ordinance that requires all independently owned ATMs have permits. Bank-owned ATMs are exempt. ISOs are charged between $1,500 and $5,000 to go through the permitting process. ISOs say that the fees are so high that they will be forced to pull the plug on their ATMS. City officials say the requirement is needed to ensure public safety. Similar measures have passed in two suburban New York counties and New York City officials are considering doing the same.

"I have seen films of people murdered at drive-up ATMs at banks, and every skimming incident I have heard about recently has been at a bank," Brown said.

Given the overall cost of the permit process, which can exceed $3,000 in some zoning districts, ISOs fear that the ordinance acts as a de facto ban on independently owned machines.

Danny Parker, general counsel for San Francisco-based Swipe USA LLC, which operates about a dozen ATMs in Berkeley, predicts many independent owners will come to the same conclusion as Showcouh.

"The cost, I think, will be the difference in whether some small business owners can stay in business or not," Parker said.

Jerry Silva, a senior analyst with Needham, Mass.-based Tower Group Holding Corp., agreed that the fees are likely to put a burden on independent ATM owners and operators.

Silva said that, in many cases, the fee would "essentially double the cost of the machine, meaning that the merchant would need twice the (transactions) to offset the cost of the machine."

"As it is, for small convenience stores, generating 250 transactions a month to break even is difficult, (and it would be) worse if you force them to generate 500 transactions a month," he added.

Parker warns that the crackdown may have unintended consequences for the city.

"The burdensome fees have a chilling effect on doing business in Berkeley," he said. "It seems to me to be a little bit short-sighted."

Although Silva was not aware of any studies that explore the impact on the removal of ATMs might have on local economies, he did say c-store customers, on average, spend about $1 more in stores where they can withdraw cash from an ATM.

While the loss of independently owned ATMs would impact the city's sales tax revenue, he said, some ISOs will likely comply with the regulation and continue doing business.

"While the permit fees do strike me as onerous, I would be surprised if the ISOs pull out entirely," he said.

Brown said ATM owners should organize a united effort to oppose permit fees, especially ones that target independently owned and operated ATMs.

"In essence, the city is forcing consumers to only use ATMs at banks," he said. "They are dictating what choices are available to consumers. ATM owners need to band together and fight via lobbyists and a grassroots effort, to go after elected officials that support that type of legislation."

Of particular concern to many ISOs is that Berkeley's approach to independently owned ATMs could be duplicated in other cities.

"Berkeley is very close to San Francisco and Oakland, and many times, once Berkeley does something, those cities follow," Parker said. "We are concerned that other cities are going to find out about this and the idea will spread."

And in some places, it's already catching. New York City is considering an amendment to its administrative code - one that would separate the licensing requirements for "private" ATMs from FI-owned ATMs.

Westchester and Rockland counties - suburbs of New York - have already passed regulations specific to non-FI ATMs, and Nassau County-Long Island, N.Y., is expected to be next.

"My greatest fear," said Molly McClarrinon, chief operating officer for Swipe USA, "is that one of these (Berkeley) city planners goes to some conference with other cities and says, 'Guess what we're doing.'"

(Read also ... Two NY counties require registration of non-bank ATMs)