Playing Politics With ATMs

If you’ve ever said to yourself, "There ought to be a law," then you have a friend in the U.S. Senate, and his name is Alfonse D’Amato. Senator D’Amato (R-NY) is running for re-election next year, and lately, he’s been listening to the gripes of his constituents. Some of them think that having to pay fees for using a bank’s Automated Teller Machine (ATM) is a nuisance. This spring, D’Amato dredged up a bill from last year that would prohibit banks from charging fees to the customers of other banks who use their ATMs.

Although maintaining ATMs is very costly to banks, most do not charge their own customers for using their machines. However, to keep those customers from going elsewhere for ATM services, banks do charge them a "foreign fee" for using ATMs owned by another bank. Most of the fee helps cover the costs of maintaining their own ATMs. Some of those "foreign" banks, however, post an additional fee of their own, called an "access fee" or "surcharge"– charged to users with accounts at other banks for using a foreign ATM.

Until last year, the two largest national ATM networks, PLUS and Cirrus, had, as a general policy, forbidden foreign banks from posting their own fees. Calling this prohibition anti-competitive, however, 15 states recently changed their laws to prohibit the networks from preventing "foreign" banks from posting a surcharge. Several other states were considering similar changes as well. In April 1996, PLUS and Cirrus relented and began allowing surcharges in all 50 states. Naturally, the number of banks posting surcharges has increased dramatically since that time.

Senator D’Amato was shocked to find that commercial enterprises aren’t just giving away their services for free. He claims that ATMs are profit centers and that, by posting surcharges, banks "have decided to soak consumers with multiple fees every time they need to take money out of their accounts." But D’Amato is wrong on both charges. Prior to the introduction of ATMs, individuals needed to write checks for cash at their own banks, pay by check at retail establishments, or use credit cards. But banks generally charge implicit fees for personal checking accounts and explicit fees for credit cards, so claims of newly contrived charges are somewhat specious.

With the emergence of regional, national, and international ATM networks in the 1970s, however, all that changed. Cash became available to most bank customers 24 hours a day, all across the country. ATMs are much more convenient for consumers, who no longer need to wait in long lines during business hours.

But providing ATM services is not free. It is true, as D’Amato argues, that individual banking transactions are less costly to banks when they are conducted at ATMs than when they are conducted in bank branches by human tellers. But this does not mean that banks therefore profit from ATMs. Consumers have responded to this new convenience by using ATMs more than twice as often as they once used human tellers. A 1994 study published by the Federal Reserve Bank of Richmond found that "banks today realize no net cost savings from these developments."

Because teller services and ATMs complement one another so well, ATM availability allows banks to attract a broad enough customer base to still be profitable. But preventing banks from charging for automated teller services will do no one any good. Instead, it is likely to cause banks to eliminate all but the most frequently used ATMs and to make up the costs in other fees. That’s likely to hurt rural residents more than urban dwellers and suburbanites. Unfortunately, that’s what politics seems to be all about: pretending that consumers (read: voters) can get a free ride on someone else’s dime, with no harm being done.

Paying foreign fees and surcharges for using an ATM owned by another bank is essentially no different from paying a premium for such other conveniences as one-hour photo development or overnight package delivery. Remember also that consumers can circumvent both foreign fees and surcharges merely by conducting transactions at an ATM owned by their own bank.

In the United States today, 8,600 banks operate 119,000 ATMs, allowing unprecedented access to banking services all across the country. And still, only 54 percent of all ATMs in the country charge access fees. Certainly, paying ATM surcharges is annoying, but there ought not be a law that forces a broad group of consumers to pay for the convenience of others.

Gregory Conko is a CEI policy analyst.