Renewing his offensive against automated teller machine surcharges, Sen. Alfonse D'Amato said they are an "abusive practice" that can "coerce" customers at small banks to move to larger institutions with more extensive networks of machines.

"Institutions that totally dominate the market and have the leverage and ability to charge more place the smaller institutions they are competing with at a disdavantage," the Senate Banking Committee chairman said Thursday at a hearing on his bill to ban the extra fees on ATM users.

ATM-owning banks that are surcharging - taking advantage of authority recently granted by MasterCard and Visa to collect fees directly from customers of other institutions - are "getting a free lunch at the consumer's expense," said the outspoken New York Republican.

Patrick G. Calhoun, president of State Employees Federal Credit Union in Albany, N.Y., said the surcharges threaten the survival of many credit unions because customers can avoid the extra costs by moving to larger banks with more ATMs.

Paul Green, president of Massachussetts Cooperative Bank, Dorchester, said surcharges could "kill off small bank competition" and ultimately result in the "destruction of small banks."

But not all the smaller institutions Sen. D'Amato is seeking to defend are supporting his bill.

The Independent Bankers Association of America "cannot support any legislation which would ban the use of access fees by ATM owners," said Grafton (Wis.) State Bank president Thomas J. Sheehan, speaking for the community bank trade group.

"Market forces should dictate whether a charge should be imposed for the use of an ATM, and how much that charge should be," he said.

America's Community Bankers lobbyist Robert Davis added that the "jury is still out" on whether the surcharges will have a detrimental effect on small banks.

Testifying against the bill on behalf of the thrift trade group and the American Bankers Association, Phil Hudson, executive vice president of First Security Service Corp. in Salt Lake City, said a surcharge ban would discourage banks from opening more ATMs.

The Consumer Bankers Association also came out against the legislation, arguing in a statement Thursday that consumers have several ways to obtain cash and many are prepared to pay for ATM convenience.

But Sen. D'Amato said said his bill is "not an attempt in any way to limit or impede banks." Rather, he aims to limit banks' charging "over and above where they are already making a profit."

In response to testimony that bank customers get adequate disclosure of the added fees, Sen. D'Amato said, "The customer knows - so what?"

The customer, he said, has little alternative once he reaches that point in the transaction.

Rep. Marge Roukema, R-N.J., chairman of House Banking's financial institutions subcommittee, has sponsored legislation that would require banks to disclose ATM surcharges.

ATM fees, a hot political issue - particularly in Sen. D'Amato's home state - sparked a protest Thursday at Chase Manhattan Corp. headquarters in New York. (See page 14.)

Mr. Coplan writes for Medill News Service.

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