The city council of Santa Monica and the voters of San Francisco have adopted ordinances banning access fees charged by banks to noncustomers who use the banks' ATMs to withdraw money from another bank. These bans could deal a serious blow to consumers and small banks.
It's difficult to imagine the ordinances will withstand the legal challenge under way. For one thing, activities and fees of national banks cannot be regulated at the local level. Then there are the constitutional issues involving the taking of private property and denying banks equal protection of the laws (the ordinances do not apply to non-depository institutions).
Since banks were permitted in 1996 to charge access fees, they have nearly doubled the number of ATMs. The industry has spent roughly four billion dollars to install ATMs during this period. Moreover, it costs about $1,000 a month to maintain each machine -- or about $250 million a month for the industry as a whole.
Use of the machines has remained fairly constant, at about 11 billion transactions annually since 1995. Banks couldn't spend billions on new machines in the face of constant demand unless they could find a way, such as transaction fees, to help foot the bill.
Consumer convenience has grown enormously. ATMs are ubiquitous, showing up on most streets and at airports, shopping malls, and grocery stores.
Consumers pay for convenience in nearly every aspect of their daily lives. They spend more to shop at a convenience store than at a grocery store. They pay more for stamps from a vending machine than from the post office.
It's true that one motivation for banks to install ATMs is to encourage their own customers to use machines rather than flock to the teller lines. That's why they seldom charge their account holders for ATM use.
But what would motivate a business to provide free, convenient, around-the-clock service to people who do not otherwise patronize the company?
Most state universities charge higher tuition to nonresidents than to residents. Imagine the uproar if a state taxed its residents to establish a university and then allowed nonresidents to be admitted on the same basis as residents.
If the ordinances adopted by Santa Monica and San Francisco withstand court challenges, consumersmay well be denied access to the machines unless they maintain an account at the bank.
If this happens, consumers will have to maintain deposit relationships with very large banks to have convenient access to a lot of machines. This will clearly put smaller banks at a disadvantage.
Moreover, even the largest banks will have an inconsequential number of ATMs compared with the total number of ATMs available. So consumer choice and convenience will be severely impaired.
It's time for a bit of sanity to prevail. Let's respect private property rights. And let's allow the marketplace to determine the value of access to ATMs.
