The fight over automated teller machine fees moved to the national stage on Thursday, with a pair of U.S. representatives pledging to introduce bills this week aimed at curtailing the charges, and several major U.S. banks -- including Fleet Boston Corp. and Chase Manhattan Corp. -- predicting fierce opposition.
Rep. Maxine Waters, D-Calif., introduced a bill Thursday that would eliminate surcharging nationally. Another member of Congress, Rep. Bernard Sanders, Independent-Vt., proposed a similar measure Nov. 5 and said he would introduce a second one before Congress adjourns for the year. The measure was expected late Thursday or today.
Initiatives to ban ATM fees had languished for about a year but are springing to life on federal, state, and local levels. The last time the issue captured national attention was in 1998 before former senator Alfonse D'Amato, then the Banking Committee chairman, was defeated for reelection. Mr. D'Amato had crusaded unsuccessfully for an end to surcharging.
But controversy over the fees -- which banks characterize as convenience fees that compensate them for building large ATM networks but which consumer groups say duplicate other fees banks charge for electronic funds withdrawals -- has been gathering steam. San Francisco and Santa Monica, Calif., have already passed ordinances to outlaw fees.
Enforcement of the California measures was blocked by a judge on Monday, but that has not stopped authorities in New York City, Los Angeles, San Diego, and other cities from exploring similar measures. The issue has emerged as a popular one for politicians and a convenient rallying point for consumer frustration over rising bank fees of all types.
"I think most people feel like they can't fight City Hall, and this is kind of like fighting City Hall," said Mr. D'Amato in a telephone interview.
But he did not predict favorable outcomes for either the new bills in Congress or the local initiatives. "It would be extraordinarily difficult to pass local legislation which can withstand a court challenge," Mr. D'Amato said.
Regarding passage in Congress, Mr. D'Amato pointed to his own experience as evidence of how tough that road would be. "It will be difficult to pass Bernie Sanders' legislation," he said. "I had a very hard time getting up for a vote in the Senate, and I was chairman of the committee. I only got 23 votes."
James Schepker, a spokesman for Fleet Boston, predicted that any new rule would prompt banks to impose limits on customer access similar to those adopted by BankAmerica and Wells Fargo, which both shut out noncustomers in San Francisco and Santa Monica after the initiatives passed.
"It would at first hurt our profitability, and it would very quickly, as you saw in the West Coast, begin to impact consumers," Mr. Schepker said.
The proposals from Reps. Waters and Sanders both staunch liberals -- would prohibit banks or other ATM owners from surcharging noncustomers, eliminating one of the two charges often levied for ATM use. The second is a "foreign" fee that many banks charge their customers for using other banks' ATMs. Surcharge opponents often say they are particularly galled by the double charge.
A spokesman for Rep. Sanders said the congressman reintroduced a bill first put forth in tandem with anti-surcharge legislation pushed by Mr. D'Amato. The spokesman said budget negotiations have taken a front seat in recent weeks but expects others in the House to co-sponsor the bill next year.
Meanwhile, bankers -- careful not to make outright threats -- are warning surcharge foes to be careful what they wish for. If the legislative initiatives succeed, the bankers say, many banks will stop letting noncustomers use their ATMs. Large banks have responded with the argument that restrictions would reduce convenience for everybody and potentially deal a blow to small banks with modest ATM networks. The regional ATM networks whose role it is to switch transactions among banks might also see their business reduced, experts said.
"If a ban on surcharging were to result in what's already started in California, that would be, I believe, a defeat for the little guys," said Ken Herz, spokesman for Chase. "I think it would actually be worse for them than it was for them than it was before the (shared) networks became available."
Chase began charging noncustomers this year, as did its largest local rival, the Citibank subsidiary of Citigroup Inc. Those policies are now under fire, with New York City Council speaker Peter F. Vallone vowing to introduce legislation next week that would ban ATM surcharges in New York. He said he wants hearings on the legislation to begin in December.
Mr. Herz said Chase will argue to local officials that surcharge restrictions are bad for competition, specifically for small banks.
"If I were a customer of a little guy that has few, if any, ATMs, and I've been able to use Chase and Citi and other ATMs, and all of a sudden those were no longer available to me, I might start thinking 'Am I in the right place?' " Mr. Herz said.
Bank of America Corp. and Wells Fargo & Co. lashed back against surcharge activists, shutting off their ATMs to noncustomers in Santa Monica on Nov. 11, the day a city council ban on the fees was to take effect.
In an interview Thursday, Rep. Waters said she wants her bill to supersede local efforts, to "do it right over the top ... for everybody." She called fervor over ATM charges as a "symbol" of consumer "displeasure" with all bank fees.
"I'm opposed to what has become a major source of income for banks and that is fees to its customers," Ms. Waters said. "There are organizations, businesses, who do nothing but teach banks how they can charge additional fees."
Surcharging became prevalent in 1996 after Cirrus and Plus, the national networks of MasterCard International and Visa U.S.A. respectively, dropped their bans of the practice. Though state banking regulators in Connecticut and Iowa have since banned surcharges, previous legislative attempts have failed at the federal level and in other states. Surcharging continues to proliferate, and even in Connecticut and Iowa, regulators are facing challenges.
In Connecticut the ban is based on the state banking commissioner's interpretation of a 1976 law that outlines the services for which banks may charge fees. In April a federal court ruled against the regulators, saying it is up to the Office of the Comptroller of the Currency to decide whether nationally chartered banks can impose surcharges in that state, but it did not authorize the fees, leaving national banks confused.
In September, the case was heard before the Connecticut Supreme Court, and Fleet and First Union National Bank are awaiting a ruling. Mr. Schepker said the bank is hoping for final word by yearend.
Mr. Schepker said though Fleet has committed to challenging the ban through litigation -- rather than shutting out noncustomers -- industrywide, the effects would "be entirely felt by consumers as they see franchises either grow static or in some cases decline."
Mr. Schepker said the ATM surcharges are necessary for Fleet to "break even" on operating costs. But Chase, which began surcharging in January, "saw a revenue opportunity," Mr. Herz said.
"It's not like having all these noncustomers makes it that (much) more expensive to operate, but since we have all these noncustomers using our machines, they should contribute to the significant cost of operating the network," Mr. Herz said.
Banks say the proposed bans set a dangerous precedent that recall the days of tight government regulation on the industry. The New York Bankers Association, which represents all of the state's commercial banks, has requested a meeting with Mr. Vallone to object to the proposal.
"We take it very, very seriously," Mr. Herz said. "First of all, it's a significant source of revenue, but aside from that ... why stop at surcharging? Why not ban overdraft fees? It's like open season."
Mr. Herz said prohibiting surcharging would essentially mean that ATM owners would be subsidizing smaller banks, credit unions, or even brokerage houses that rely heavily or completely on others' ATMs.
"Why should Chase subsidize a big profitable brokerage house that is actively soliciting our customers for checking and savings ... but doesn't have any ATMs," he said.
Observers say Internet-only banks, which rely solely on outside ATMs, could also suffer.
Responding to criticism that banks did not apparently need surcharge revenue to operate ATMs before 1996, Mr. Herz said: "New York City didn't have a city income tax years ago ... people don't go around saying 'Well, New York City didn't use to have an income tax, why do we have one now?' The world changes."
Dennis F. Lynch, president and chief executive officer of Woodcliff Lake, N.Y.-based NYCE Corp., said he would be surprised if financial institutions implemented any shutout policies "long term," given how mainstream the activity is. "Obviously, consumers have gotten used to going to other banks' ATMs tens of thousands of times a day across the country," he said. If large banks were to stop sharing their machines, however, it would have a "serious" effect on the networks, he said.
Michael P. Smith, president of the New York Bankers Association, said Mr. Vallone's intentions have broad repercussions. "Any bank in the state of New York is worried about this," he said. "This is not just New York City, this is an issue that will have a profound impact on the industry because it is re-regulation, it is government moving in to control pricing."
Mr. Smith said there is a general consumer backlash to the deregulation of the banking industry. Before deregulation, "the perception was you were giving things away free when in fact, because you had this interest rate spread, it subsidized all other parts of the bank. When you deregulate interest rates, deregulate the rest of the business, you unbundle and you start charging for things," he said. "When these things happen, people say 'Why now and why this much?' "
Rep. Waters predicted that banks will see "legislation and ballot measures all over the country," and that ATM fees are just the beginning. "I think there's going to be a big revolt against fees in general," she said.
Edmund Mierzwinski, consumer program director for the United States Public Interest Research Group -- which was a major driver in the movement in California -- said ATM fees are the "poster child for unfair fees." ATM charges are unique because consumers use the machines frequently and the fees are not seen as punitive in the same way, say, that a bounced check fee might be.
"There's a powder keg out there of consumers waiting to go after credit card fees," Mr. Mierzwinski said.
