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With its proposal to ban surcharging at bank-owned ATMs within city limits all but a done deal, Santa Monica, Calif. is poised to make history.by Ann All, editor
October 28, 1999
Santa Monica, Calif. may earn itself a place in ATM history following an Oct. 5 decision by its City Council giving preliminary approval to an ordinance that would prevent banks within city limits from surcharging non-customers at ATMs. Though other cities have tried -- and ultimately failed -- to pass similar ordinances, Santa Monica council members and Deputy City Attorney Adam Radinsky expect their ordinance to pass on its second reading Oct. 12. If that happens, the law will go into effect on Nov. 11. Radinsky, who prepared a report on the issue prior to the vote, called the second reading of the 4-3 decision "a formality." Council member Michael Feinstein, one of two sponsors of the ordinance, said, "We're not shy about doing what we think is right. What we're doing is going to lead to a nationwide change in the banking industry." According to the Los Angeles Times, a bank lobbyist who spoke at the meeting said that an injunction will be filed against the law, should it pass on the second reading. Radinsky said the city expects a legal challenge from banks. "It would be extremely surprising if there were not a lawsuit filed by the banking industry because of the incredible amount of money involved. That almost guarantees litigation." Feinstein noted that Santa Monica has battled with large and well-funded companies before, in one instance taking on Mobil Corporation over fuel additives. "We've got a pretty tough backbone," he said. In a surcharge dispute in Iowa, a panel of the U.S. Court of Appeals for the Eighth Circuit issued an opinion that stated, in part, "Congress has made clear in (the National Bank Act) its intent that ATMs are not to be subject to state regulation." Yet Radinsky said he is confident that Santa Monica's measure would stand up under legal scrutiny. "The U.S. Supreme Court and the courts in California have said pretty consistently that states do regulate national banks in a variety of ways," Radinsky said. "California has laws pertaining to lighting and safety at ATMs and the disclosing of surcharges at ATMs, for example." Earlier this year, the Berkeley, Calif. City Council approved a nearly identical proposal on its first reading but decided against final approval when banks threatened to take legal action against the city. The San Francisco Board of Supervisors tabled a measure last February, but a ballot initiative will go before that city's voters next month. "The promise of litigation gave Berkeley's council sufficient pause to request an Attorney General's opinion on the legality of such moves, and we would hope Santa Monica will at least wait for that and the outcome of the San Francisco election in November," said John Stafford, a spokesman for the California Bankers Association. Yet another California city plans to address the issue -- and soon. According to the Los Angeles Times, Los Angeles City Councilman Alex Padilla has asked the council to direct city attorneys to draft a comparable proposal. The California Public Interest Research Group, a vocal surcharge opponent, has been involved in all of these efforts. Noting that anti-surcharge proposals have failed at both the federal and state levels, CalPIRG's Janine Benner said, "The way we see it, the federal and state levels have failed to enact this consumer protection. If the law says this can happen at the local level, then that's where it needs to happen." "It's often easier to make political change on a municipal level," Feinstein agreed. CalPIRG thinks Santa Monica's action "will spread like wildfire," Benner added. "We're hoping it gives a lot of momentum to the initiative in San Francisco, which we're also working on." Though the Santa Monica council's decision will apply only to bank-owned ATMs, it has independent deployers worried. Don Markum, owner of Integrated Transactions and Technologies Inc., a small West Los Angeles-based ISO, said, "If the legal staff of the banking industry cannot blow this apart to show how ridiculous it is, then we will definitely have reason to be concerned." The Santa Monica council considered -- and rejected -- amending its proposal to include ATMs not owned by banks. "A lot of the fairness issues and double charging issues apply just as much to non bank ATMs, but a very significant issue that doesn't apply there is the anti competitive problem with the surcharge," Radinsky said. Radinsky and Feinstein insist the proposal is meant to help small banks compete with giants like Wells Fargo and Bank of America, but Jim Giraldin, chief operating officer of Santa Monica-based First Federal Bank of California, said nothing could be further from the truth. Calling the proposal "political grandstanding," Giraldin said that he and a representative of Santa Monica's only other community bank, First Professional Bank, both spoke out against it during a sometimes contentious three-hour debate. Noting that his bank's 19 ATMs, seven of which are at off-site locations, "are not super moneymakers for us," Giraldin said, "I would not have bought a remote, off site ATM if I knew I couldn't have a surcharge. If they impose this ban, I will close them down and put them in a warehouse because I cannot operate an ATM at anywhere from a $4,000 to a $7,000 loss each month." Daniel L. Ehrler, executive vice president of the Santa Monica Chamber of Commerce, agreed with Giraldin. "If the banks can't afford those ATMs, they're going to pull them. So not only will it negatively impact local banks, it will also negatively impact consumers."
