Alfonse D'Amato, chairman of the Senate Banking Committee, was preparing legislation Wednesday that would ban surcharges at automated teller machines.

Just the threat of the bill, which the New York Republican may introduce as early as today, could have a chilling effect on banks' taking advantage of new MasterCard and Visa rules allowing them to impose an extra transaction charge on ATM users.

The surcharge policy has drawn fire from consumer advocates and shown signs of escalating into an election-year political issue. It was the subject of a House Banking subcommittee hearing Wednesday, where industry officials defended free-market pricing.

Two House members - Charles Schumer, D-N.Y., and Vermont independent Bernard Sanders - have introduced anti-surcharge bills, but Sen. D'Amato's standing as a committee chairman would draw more attention to his attempt.

While lobbyists doubted that such a bill could be enacted this year, they said it could have the desired effect. Sen. D'Amato sent a similar chill through the credit card industry in 1991 when he proposed a cap on interest rates.

"Nobody will dare go too crazy with these surcharges," said a banking lobbyist.

"D'Amato has a populist streak, especially when it comes to banks," said another. "He feels these charges aren't warranted, and he's going to do something about it by putting in a pretty tough bill."

At the House financial institutions subcommittee hearing Wednesday, Rep. Jim Leach, chairman of the full banking committee, did not specifically endorse a surcharge ban. But the Iowa Republican seemed to question the validity of the fees.

It may "be wise for the industry to take a step back and put a voluntary freeze on surcharges," Rep. Leach said.

Stating the industry viewpoint, Paul A. Allen, executive vice president and general counsel of Visa U.S.A., said his association lifted the surcharge ban April 1 because 15 states had already passed laws allowing the fees.

The state actions "materially undermin(ed) the goal of price predictability," Mr. Allen said, but banks in Visa and its Plus System ATM affiliate felt price predictability was less important than customer convenience. The charges can enhance convenience by financing "additional ATMs in locations where ATMs are expensive to operate."

Richard P. Yanak, president and chief executive of the New York Cash Exchange Corp., operator of the NYCE network, said that in states that allowed surcharges, consumers have benefited with "access to ATMs in locations that would not otherwise have had them."

Consumers "won't pay if they don't think it's worth the price," added Mr. Yanak, who was testifying on behalf of the Consumer Bankers Association.

The industry officials panned Rep. Schumer's bill, which would require that all fees a customer pays at an ATM be disclosed at the time of the transaction.

While disclosures of surcharges are already required by the Federal Reserve's Regulation E, Rep. Schumer's bill would also require disclosure of the fee assessed by the consumer's bank for using an ATM owned by another, "foreign" bank.

Philip Hudson, executive vice president of First Security Service Corp., Salt Lake City, said a foreign-fee disclosure rule would require new software for every bank and electronic banking network.

"The result would be much higher customer charges and fewer ATMs, to the detriment of consumers," said Mr. Hudson, who testified for the American Bankers Association.

The House panel will hold another ATM fee hearing today, with Federal Reserve Board Governor Lawrence B. Lindsey and consumer group representatives slated to testify.

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