ATMs: A Great Boon To Consumers

Let's Not Pass Legislation That Would Kill Them
July 1999

Massachusetts News
By Eric Darbe

July 2--On June 6, the Legislature's Banks and Banking Committee passed a bill to ban ATM surcharge fees. Last year a similar measure was killed by the House. Hopefully Speaker Finneran's recent characterization of the bill as "highly unnecessary" means it will face the same fate this year.

In 1980, if you ran out of money away from home, late at night you were in serious trouble. Today, we are no longer faced with such a predicament, thanks to the ATM. So much a part of our every day life has the Automatic Teller become that many of us think of it as a birthright, something we are entitled access to wherever we go, free of charge.

Supporters of anti-surcharge legislation say that they want to protect consumers and small banks from larger banks. Senator Andrea Nuciforo (D-Pitsfield) said: "If we as legislators are interested in preserving small banks and community banks, then we've got to make sure the largest and most powerful players do not gain an unfair advantage..."

Some special interest groups agree, and say that the banks are soaking consumers. A recent study by the Washington-based U.S. Public Interest Research Group found that banks generate $2.1 billion in revenue from ATM fees. Elisabeth S. Baker of the groups Massachusetts office told the Worcester Telegram and Gazette that the banks were "double dipping" and that "ATMs have become a rip-off."

The chairman of the House Banking Committee, Phillip Travis (D-Rehoboth) claims to be against a ban on ATM fees. He told the Fall River Herald News on December 17, "I feel that it should be a market driven decision on the part of the banks.

Despite his claim that he feels the free market should drive the bank's decisions on ATM fees, Travis went on to say that he supports price controls. "I have a bill that would put a prohibition of up to $1 on the surcharges," Travis told the Herald News.

MassPIRG, the senator, and the Chairman demonstrate a general lack of understanding of what ATM fees represent.

What sparked the fees is the free market. Americans have shown that they are willing to pay for the convenience of having ATMs in the corner store, the supermarket, or the Fleet Center. But this convenience, and the freedom that comes with it costs money.

Not only banks are involved in the ATM business. Some of the more out of the way ATMs are operated by nonbanks. These, even more then bank ATMs, depend on surcharges to operate. According to the Boston Herald, "The number of nonbank ATMs--stand alone machines typically found in places like bars or convenience stores--has exploded since federal law was changed in 1996 to permit ATM surcharges."

As Jonathan Charles Bradley of the Center for Market Processes points out, "The reason for [the dramatic increase in consumer access to ATMs] is simple: Allowing ATM surcharges has encouraged firms outside the banking industry, as well as banks, to put ATMs in more convenient locations where, without surcharges, ATMs may not generate enough bank customer traffic to be profitable. Those locations include supermarkets, convenience stores, and airports. Consumers now have the option of paying a surcharge for getting money from the new machines or going to other, less convenient, ATMs."

Not only is the free market responsible for the spread of the ATM--paid for by surcharges--but, it has also led to the formation of an alliance of small banks, which now provide surcharge free ATMs. The banks banded together to form the Sum network. The network allows members of participant banks to use any other participant bank's ATMs for no fee. Sum is second only to BankBoston in number of ATMs controlled (BankBoston has 83 more). And, many observers expect the Sum network to overtake BankBoston following their merger with Fleet and become the number one provider of ATM services in the state.

Currently, Massachusetts bank customers have many options, some of which include: going to their own bank's ATM for free; using another bank's ATM and paying a fee; using a non-bank ATM and paying a fee; going to a branch, waiting in line, and getting cash for free; and withdrawing larger amounts to cut down on the number of times they are charged fees. They can even join US Trust or other members of the Sum Network.

Passing a surcharge fee ban would mean less ATMs and/or the transfer of the cost of the machines to all bank customers, some of whom may never use them. If the legislature was really interested in protecting taxpayers from "double-dipping" they would keep their promise to cut the capital gains tax rate--which double taxes earnings--to zero. And, unlike ATMs, the only way a citizen can avoid that surcharge is to go to jail.