To most people in the automated teller machine business, a recent federal court decision in California upholding banks' ability to charge fees has put the issue largely to rest.
"Once the ruling goes in this direction, it will be awfully difficult to overturn this trend," said Mark Walter, a banking technology consultant in Lake, Mich.
Courts in several states have ruled in banks' favor with some unanimity, agreeing that the matter is governed by federal laws that give banks reasonable leniency in setting prices for their services. While consumer groups that object to surcharging are vowing to press on, the banking industry seems to have made its peace with the issue. Last year's fears that a local referendum, court decision, or other development would curtail banks' ability to surcharge - or create a patchwork of conflicting rules - have largely evaporated.
On June 30, the U.S. District Court for the Northern District of California ruled that any local ordinances restricting ATM surcharges violate both the National Banking Act and the Home Owners Loan Act, which govern nationally chartered banks and federal savings banks, respectively.
In his ruling, Judge Vaughn R. Walker sided with Bank of America Corp., Wells Fargo & Co., and California Federal, a thrift. His decision struck down an anti-surcharge referendum passed by voters in San Francisco and an ordinance passed by the Santa Monica City Council.
Judge Walker wrote: "Both the banks and Cal Fed have demonstrated success on the merits and will suffer irreparable injury if the cities are not enjoined from enforcing these ordinances."
The decision will set precedent for similar proceedings in several states, among them New York and New Jersey, according to industry experts and lawyers.
"This is a major blow to any local government to regulate ATM fees," said Stan Paur, president of the Pulse EFT Association in Houston. Whether or not to charge a fee will remain an "individual decision by the ATM deployer."
Indeed, as the practice of surcharging matures, there are signs that the free market is addressing consumers' concerns. In some neighborhoods, individual stores with ATMs are trying to undercut their neighbors' prices, even advertising in windows that they charge lower fees for cash withdrawal, or let consumers withdraw more money.
Mr. Paur says consumers have already adjusted their behavior to reflect the new reality. People who want to avoid fees completely rely only on their own banks' ATMs, he said, whereas those who are willing to pay for the convenience of nearby cash will swallow the surcharge.
"Consumers will adapt to the market, and they will realize they have a choice," Mr. Paur said.
Mr. Walter predicted that price competition among ATM deployers will proliferate. "If you do not differentiate in service, you have to compete on price," he said. "Consumers go by five grocery stores on their way home," and are in a position to choose where to withdraw money.
Jim Judd, a senior vice president at NYCE Corp., the ATM network headquartered in Woodcliff Lake, N.J., said the California decision could help quash an anti-surcharge effort in New Jersey, where the Federal District Court in Newark will take up the matter next month. "No regulation has prevented competition in the financial world," he said. "The market is efficient."
Mr. Judd said he did not foresee a lot of bargain-basement ATM pricing from banks seeking to attract customers. "Consumers make a complex decision as to where they bank, and ATM supply is a factor," he said.
Despite the weight of pro-surcharge rulings, opponents still express optimism that they can combat the distasteful fees. San Francisco and Santa Monica are aiming for redress from the U.S. Court of Appeals.
"Ultimately the banks have to reconsider their policy," said Marc Slavin, San Francisco's deputy city attorney.
Mr. Slavin said he and his colleagues will base their argument on a 1990 ruling by the U.S. Ninth Circuit Court of Appeals in which Valley Bank of Henderson, Nev., was allowed to charge ATM fees to noncustomers. The court cited state law, and said that "Congress specifically has declined to restrict state regulation in the ATM context."
But conditions have changed radically since that ruling. Valley Bank had been charging fees within the Plus ATM network even though Plus System Inc., the national network of Visa U.S.A., prohibited surcharging. Visa and MasterCard lifted their bans on surcharging in 1996, so Valley Bank's actions would have been legal today. It was the removal of these surcharge bans that led banks across the country to begin charging fees, and started the boom in off-premises ATM placements.
Mr. Slavin said he is not daunted by the changes that have taken place since the Valley Bank decision. "We think that this applies to our case," he said. "I think our argument is a good one."
Chris Chanoweth, general counsel to the California Bankers Association, said the Valley Bank decision is irrelevant. "I see no reason why the appeals court should reach a different decision" than Judge Walker, he said.
Scott A. Anenberg, a banking lawyer at the Washington firm of Shaw Pittman, said Judge Walker's ruling is consistent with prior decisions, and confirms the difficulty of trying to address these issues at a local level. He said San Francisco and Santa Monica had been trying to argue that a provision in the federal Electronic Funds Transfer Act made their bans legal.
The issues involved in cases like this "are often complex," Mr. Anenberg said, "but I think the banks, the Comptroller, and the Office of Thrift Supervision are on fairly solid legal ground here."
