STRATEGIC PARTNERS
Even in the face of impending political threat, the surcharge seems destined to flourish if consumer demand for convenient ATMs continues at its current pace.
February 25, 2002
The surcharge seems destined to flourish if consumer demand for convenient ATMs continues at its current pace.
Although Sen. D'Amato is making a lot of noise right now on the Hill, recent general assemblies indicate the surcharge will never be banned at the state level. According to State Capital Strategies, a non-partisan research and reporting service in Washington, D.C., since state legislative sessions have adjourned, only Iowa and Connecticut prohibit surcharges by law. Connecticut's ban is currently the subject of federal litigation.
So why does Senator D'Amato believe he can affect change in Washington?
"Because of the way the Senate operates, we have long believed that Sen. D'Amato's only chance at passing or even getting a vote on his legislation would be by bringing it up on the Senate floor and trying to attach it to another piece of legislation," said Blake Hanlon of the American Bankers Association.
That fear was reconfirmed on April 1, 1998, the second anniversary of the lifting of the prohibition on ATM access fees, when he said in a speech on the Senate floor, "Make no mistake about it . . . we will be voting on this issue. I will try to attach this as an amendment to 'must-pass' legislation."
One of the ironies of his current push for a federal ban on ATM surcharges is that it was the federal government itself that helped bring the surcharge about.
According to a recent Pulse EFT Association response to D'Amato's anti-surcharge statements, the Cirrus and Plus networks started allowing surcharges in part because the U.S. Department of Justice was investigating whether the absence of surcharges was anticompetitive and harmful to consumers. Local banks and nonbank ATM owners had appealed to the Justice Department for protection against larger bank competitors.
Soon after, 23 state legislatures passed laws allowing members of ATM networks to impose surcharges.
In the early 1990s, ATMs had begun to show up in more locations and consumers flocked to them in increasing numbers. Most ATM owners did not charge other banks' customers to use their ATM. The majority of EFT networks prohibited any such fees.
But it seemed only the large banks profited from this free ATM access because their customers had an incentive to use foreign ATMs whenever they traveled. Smaller institutions had no protection against this influx of noncustomers, and as a result faced higher ATM maintenance and cash replenishment costs. The absence of any benefit from this increase in costs fueled their complaints, and abuse of their inferior ATM fleets and the cost of serving their competitors' customers created an unbalanced playing field vis-a-vis the big banks.
Feeling the pressure from state and federal authorities, Cirrus and Plus gave in to what they thought was a losing battle with the government, and removed their restriction of fees.
The government effectively forced the end of the voluntary ban on ATM surcharges which took place on April 1, 1996, and now--in what appears a case of fuzzy logic- senate banking committee chair Alfonse D'Amato is reversing his position and "fighting for the common person."
Apparently the capitalist system worked too well, because consumers got what the government thought they wanted: more ATMs in more convenient places. Now that consumer benefit pales compared to the costs associated with it.
Recent government studies at Senator D'Amato's request display the "grievous wrongs" consumers are suffering at the hands of banks.
But Stan Paur, president of Pulse EFT Association and a champion for the surcharge, says these studies on consumer behavior relating to electronic banking transactions overlook reality.
"The truth is that more and more consumers are getting cash from their bank accounts for no cost while the number of ATMs available has expanded dramatically for those consumers who are willing to pay for the convenience," Mr. Paur said.
The often-neglected side of the ATM world, privately-owned networks, have risen as a direct result of the lifting of the surcharge ban. This increased competition with the banks to serve the needs of a cash-hungry population has forced financial institutions to look at the profit potential of additional off-premise ATMs.
Even though megabanks are earning record revenue from their national surcharge ATM networks, other institutions still refrain from imposing the double fee. Some large banks intend to mimic "no surcharge here" campaigns--conducted by many credit unions and community banks--in order to attract new customers in new or low-performing markets.
Paur added that the government studies failed to observe that over half of all ATMs sold last year were to nonbanks. These private owners have been a catalyst for ATM deployment in locations that attract less traffic. Many people in rural or less populated areas rely on these ATMs for easy access to their cash.
With more ATMs available, consumers have the option to access their money in more places. Even in larger cities, where ATM choices abound, consumers appreciate the ultra-convenience of ATM choices everywhere they look.
Data gathered by the Pulse EFT Association shows that about one-quarter of cardholders pay nearly three-quarters of the surcharges. The organization's research says that the majority of ATM users avoid added fees by using their own institution's free ATMs.
To Surcharge or not to Surcharge?
ATM owners who are members of NYCE now have a choice. NYCE Corporation recently amended its operating rules to allow "selective surcharging" at network ATMs.
Under the new rules, network participants will have greater flexibility to provide their customers with a larger population of surcharge-free ATMs.
"This will provide both financial institutions and consumers with more options," said Dennis F. Lynch, president and CEO of NYCE. "The rule change allows NYCE to explore a variety of ways that we could potentially support selective-surcharge alliances."
Lynch added, "NYCE believes that free market competition among financial institutions and ATM deployers ensures that consumers will continue to have a wide range of choices when using ATMs. It is our intent simply to make sure that those choices are available, and then leave the business decision whether or not to surcharge up to each individual ATM deployer."
Numerous online no-surcharge ATM networks exist for concerned consumers looking to avoid a surcharge. New England's network is one of the better known.
Seven West coast banks with ATMs in various states teamed up last year and printed a no-surcharge ATM directory listing location names and addresses. The No Surcharge ATM Alliance and various online directories provide many choices.
Some sites include:
Indiana Surcharge-Free ATMs
Member Access Illinois ATM Network--Also has listings in California, Florida, Iowa, Kansas, North Carolina, Virginia and Wisconsin.
ATM No Surcharge Directory--Listings in Pennsylvania, New Jersey, Delaware and Ohio.
Non-surcharging ATMs-- Listings in District Columbia, Virginia and Maryland.
No Surcharge ATM Directory--Listings in Ohio
Surcharge-Free Directories--Listings in New Jersey and Pennsylvania.
The Co-op ATM Directory Index--Listings in Arizona, California, Colorado, Florida, Idaho, Maryland, North Carolina, New Hampshire, Nevada, Ohio, Oregon, Texas, Utah, Virginia, Washington and Wisconsin.
CO-OP Network, a credit union surcharge-free ATM network formed in 1981, boasts 345 credit union members and almost 2,000 ATMs. The network processes 16.6 million transactions a month.
With so many no-surcharge choices and the common knowledge that many large bank ATMs do charge the extra fee, consumers are in no way forced to use surcharging ATMs.
On the contrary, many have adjusted their usage by taking more money out of their account and lowering the number of visits per month.
Is the Government Spinning Its Wheels?
Two FDIC studies in 1978 and 1980 predicted banks would realize drastic cost cutting because of ATMs replacing branches. If this prediction had come true, there would be no need for a surcharge imposed by the banks, but since branches have actually increased in number and the number of tellers has only slightly dipped, ATMs turned into merely an additional service. Bank customers see ATMs as part of their checking account rather than an alternative to using a teller.
So instead of cost savings, ATMs have represented a cost increase to the tune of about $1.5 billion. Why would banks continue to offer ATM services when they cost so much?
One reason is to attract customers with convenient cash access. But it is doubtful that the increase in customers has offset the cost of building out large ATM networks.
The debate between business sense and politically-driven "consumer protection" will continue to flare up this year as Senator D'Amato seeks another term. No doubt the drama will play out like a high-level soap opera.
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