The people of Massachusetts, whose forebears dumped tea into Boston Harbor to protest taxation without representation, feel the same way about automated teller machine surcharges.

Massachusetts is one legislative step away from becoming the first state to outlaw extra cash-withdrawal fees that many ATM owners charge noncustomers.

The state Senate has passed a ban, but the bill has run into a snag in the House of Representatives.

Passage would represent a big defeat for the major Boston-based banks. Though neither BankBoston Corp. nor Fleet Financial Group currently imposes ATM fees on customers of other institutions, they intend to do so and have lobbied feverishly to sway public opinion.

BankBoston went so far as to send statement inserts to its million customers in the state, trying to convince them that surcharges would serve their interest by passing the cost of the service explicitly to noncustomers who use it.

Sen. Alfonse D'Amato, R-N.Y., the chairman of the U.S. Senate Banking Committee, who has been on an anti-surcharge crusade, could use the Massachusetts experience to stoke his argument.

The controversial surcharges-usually $1 to $2-have spread like wildfire since April 1996, when MasterCard International and Visa U.S.A. lifted bans against the fees that had been in the rules of their Cirrus and MasterCard networks.

The card networks had given up on enforcing their bans because more than a dozen state legislatures had acted to permit surcharges. ATM owners said the income from surcharges would encourage deployment of more machines at remote locations that otherwise could not be justified. Even though many consumers reacted negatively, transaction volumes nationwide went up.

Some smaller banks reacted by forming "surcharge-free" alliances, agreeing not to impose the fees on one another's customers. Some banks have actually begun giving their customers rebates for any surcharges they incur.

In heavily Democratic, liberal-leaning Massachusetts, the surcharge fight has taken on a high-minded tone, with advocates on both sides invoking principles worthy of the state's Puritan traditions.

"We think it's bad policy for the government to be in the business of price controls," said Thomas J. Hollister, executive vice president of consumer and small-business banking at $68 billion-asset BankBoston.

This is "a huge deployment issue for us and for other providers," he said. "If you can't charge, you'll have fewer machines and less consumer choice."

Mr. Hollister will even tug at heartstrings to make a point: "The story I like to tell is about the parent who, at three in the morning, runs out to get cough syrup for her sick child but doesn't have any pocket money. Is Massachusetts going to be the only state in the country that won't have a machine to get cash?"

Most consumers understand that banks are struggling in a competitive market, Mr. Hollister added. Among those who responded to BankBoston's mail appeal, 5% expressed "visceral, historic, anti-bank" sentiments, he said, while 95% appreciated the argument that surcharges are an economic benefit to them.

"Once customers get it, they say, 'Hell yes, you ought to charge them-I didn't realize I was subsidizing noncustomers,'" Mr. Hollister said.

Robert B. Hedges Jr., senior vice president at $84 billion-asset Fleet, contended that the surcharge issue is not a popularity contest or a public policy issue but "a marketplace issue." Like them or not, he said, surcharges are necessary for superregional banks that must invest heavily in technology.

Pro-surcharge bankers call them "convenience fees," arguing that customers are paying for the luxury of getting cash wherever they are. But those bankers face broad-based opposition from community bankers, credit union officials, politicians, and consumer advocacy groups.

"How often do you find the consumers and bankers lining up on the same side of an issue?" said Donald S. Glass, president of the Community Bank League of New England, which opposes the fees.

Turning the big banks' economic arguments upside down, Mr. Glass asserted, "A free market is when you ban surcharges," leveling the playing field for institutions of all sizes.

"I think we've got a good chance of having a ban in Massachusetts" that can reverberate nationwide, Mr. Glass said. "I know D'Amato has every intention of continuing this-it's an issue he is passionate about."

If surcharges become the norm, many community bankers fear that BankBoston and Fleet-which own about two-thirds of all Massachusetts ATMs- will steal their customers by saying they can avoid surcharges if they change banks.

Given the political sensitivity, BankBoston and Fleet have refrained from surcharging in the state, but that has resulted in an effective freeze on new ATM deployment.

Holding back on surcharges, Mr. Hollister said, "gives people time to study this thing and get the facts out."

Some Bay Staters say a ban is inevitable. After September hearings before the Joint Committee on Banks and Banking, a bill to ban surcharges passed the state Senate 38-0. (Some observers say the vote was a tribute to a sponsor, Paul White, who retired in September after 25 years as a legislator.) Among others in favor of the measure are acting Gov. A. Paul Cellucci and Attorney General L. Scott Harshbarger.

But the bill shows no sign of making it to the House floor before adjournment for the year, scheduled for Nov. 19. Most representatives are preoccupied with a death penalty proposal.

Rep. Philip Travis, co-chairman of the House Banking Committee, introduced a compromise bill that would cap surcharges and foreign transaction fees at $1. It would also prevent surcharging banks from placing messages on ATM screens to entice noncustomers to switch their accounts.

"Large bank versus small bank seems to be the thrust behind this," said Mr. Travis. "It's not the issue of the surcharge, it's the possibility of larger banks using the surcharge to pirate away accounts from the smaller institutions."

Mr. Travis said his bill allows for "a reasonable return for the bank that's the host who owns the card" and "a reasonable return for the bank that's taking the 'foreign' customer."

But surcharge opponents say Mr. Travis' measure contradicts the spirit of the original legislation.

Diedre Cummings, consumer program director of the Massachusetts Public Interest Research Group, said Mr. Travis was "abusing the democratic process that we have set up for issues like this."

"I think most people recognize that if the bill were up for a vote today, most legislators would vote for a ban," Ms. Cummings said. At least 51 of the state's 160 representatives have indicated support.

To counter the obvious public appeal of a surcharge ban, bankers have testified forcefully to legislative panels. Fleet has given legislators an accounting of costs per machine. One entity swayed was the Boston Globe editorial page, which in September reversed its position and said a total ban "smacks of overkill."

Fleet said that operating costs of its off-premise ATMs average $2,856 at retail locations and $5,200 at remote locations. BankBoston said it spent $100 million to develop its 1,500-ATM network and spends nearly as much to run it each year.

Surcharge opponents offer their own refutations. Thomas Caron, president of Easton Co-operative Bank, North Easton, Mass., testified to Sen. D'Amato last summer that an ATM at his bank cost $1,800 a month, or $22,000 a year, to run.

Mr. Glass called the big banks' cost claims "outrageous."

While the big banks say surcharges will help them put out more machines, opponents say the state already has enough.

Surcharges help "defray the cost of putting them in areas that aren't serviced," acknowledged Francis Shea, president of Wellesley Co-operative Bank of Wellesley, Mass. But he added, "I think you'd have a lot of trouble" finding such areas in Massachusetts.

Surcharge advocates say Mr. Shea is right-thanks to their own efforts and investments.

One solution discussed by surcharge opponents is to raise the fee that a cardholder's bank pays to the machine owner. That would leave it up to the card issuer to decide whether its the customer is charged. But the networks and many bankers oppose such a strategy for antitrust reasons.

In the absence of legislation, BankBoston has pledged to hold off surcharging until next July, but many observers expect Fleet to start sooner.

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